Both the wealthy and the not so wealthy are inclined to incur tax complications from gifting. Sometimes property is transferred upon death and other times the transfer occurs while the donor is still living. Either way, these people need to know that gift giving occasions require your skills as an enrolled agent to render the highest level of tax advice.
Make sure to market your tax practice as an advisor for anyone who provided a transfer of property. The general public lacks understanding of the tax consequences of gifts and inheritance. You will find plenty of clients needing the services of a tax practitioner who possesses the knowledge gained from enrolled agent continuing education.
The donor of property is responsible for potential immediate taxes associated with the giving. But there are details needed by gift recipients in order to determine future tax impact from selling property acquired as gifts.
A gift tax is combined with estate tax laws so that donors cannot give away all their property prior to death and avoid estate taxes. Every taxpayer can exclude a lifetime amount of gifts and estate value from the tax. Starting in 2010, this amount was set at $5,000,000.
However, there are other ways to avert gift tax that you discover in your tax CPE. The most common is the annual exclusion. That?s an amount adjusted each year for the cost-of-living. For 2010 tax returns, the annual exclusion limit is $13,000 of gifts to any one person during the year. Gifts that exceed the exclusion limit are subject to gift tax, which you first learn to calculate in your study for the enrolled agent exam.
There are some other exemptions from gift tax. This includes gifts to spouses and qualified charities. In addition, there?s no limit on gifts paid directly to medical or educational providers for the benefit of someone other than the donor.
Non-cash gifts create the most problems. The fair market value of the property is used to ascertain the amount of the gift. But the real complication is caused for the gift recipient. That?s because the recipient will eventually sell the property and therefore needs to know the cost basis.
You?ll find many taxpayers who don?t realize there is a basis in gifted property despite personally paying nothing. They need that basis figure to subtract from sale proceeds when determining taxable capital gain. Your expertise from enrolled agent CPE unburdens this future tax consequence for a gift recipient by showing the gift donor how to convey basis.
Gifts during a donor?s life have a different basis than if the same property is given after death of the donor. A gift from a decedent?s estate has a basis of the fair market value upon death. An estate executor can usually provide this amount. The value is also available from public pricing in open markets or with an independent appraisal.
When the gift occurs while the donor is living, the donor?s basis is transferred with the property. The recipient has the same basis as the donor. Communication of this information is best conducted at the time of the gift, before memories fade or the donor?s death occurs.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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