Question

1. Having made no prior taxable gifts during the current year, D transferred title to her car to her 16 year old son, saying, “[t]his is for you. Now, I won’t have to drive you everywhere.” The car had a value of $21,000 at the time of the transfer. D asks you whether she should file a federal gift tax return reporting the transaction. (Assume that D is not married.)

a.  What would you advise her?

b.  What would be the result if D sold the car to her son for $12,000?

c.  What would be the result if D sold the car to her son in return for her son’s agreement to pay $12,000 to his sister (D’s daughter), a 21 year old college student whose tuition D otherwise was paying?

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2. D purchased a used car for $4,000 from Junior’s Used Cars. The fair market value of the car was only $2,500.

a. Has D made a gift of $1,500 to Junior?

b. Would the result be different if D and Junior were relatives?

Answer 1

1) As per Laws , Gift tax return is basically a return which is filed by the individuals who give gifts to other individuals of amount that is more than the exempt value , here exempt value is $15000 and if anyone gives gifts that is over and above $15000 are needed to file that return

a. I would advise her to file Gift tax return because gift value increases $15000

b. If D Sold out the car to her son at $12000 , she would not be required to file the return because the value of gift is less than the exempt value

c. This also would be counted as gift only because minoe cannot make agreements on their own , Agreements made by them are Void ab initio i.e void from the beginning and D requires to file Federal gift tax return in this case

2) D purchased a used car for $4,000 from Junior’s Used Cars. The fair market value of the car was only $2,500.

If any moveable property is received without consideration or received at consideration less than fair maket value, then it is considered as a gift.

If a gift is received from a relative, then it is tax exempt.

a. A person receiving a car at less than fair market value is termed as gift. But, in this case, D has paid more than fair maket value. Hence, D has not made a gift of $1,500 to Junior.

b. Result would be same even if D and junior were relatives because the car is not received less than fair market value, rather D has paid more than fair maket value.