5.        Ten years ago, Marvin purchased land for $200,000. He is in ill health and is contemplating selling the property and giving the proceeds to his children while he is still alive and can witness their enjoyment of the money. A recent appraisal indicates the property has a value in the neighborhood of $2,500,000. Marvin asks your advice as to the disposition of the property. You offer which of the following comments to Marvin:

 

a.   The taxable gain on the property would be $2,500,000

b.   The gain would be considered short-term capital gains

c.    Prior gifts to the children need not be taken into account

d.   Income tax may be avoided if Marvin bequeaths the property to his children instead of gifting it

6.        A taxpayer is permitted to give at total of up to $15,000 per year (in 2018) to any person without any gift tax consequences, regardless of his relationship to the recipient(s). (True/False).

 

 

 

 

7.        When the recipient sells a gift for a gain, the basis for a non-cash gift is generally

 

a.            the value of the gift at the time of the transfer

b.            dependent on the type of property that was gifted

c.             the value of the gift at the end of the year in which the transfer occurred

d.            the transferor's basis

8.        John established a section 529 plan for his child in 2000. From 2000 until his child entered college in 2017 he deposited $3,000 per year in the 529 plan, and at the beginning of 2017 the plan had a value of $72,000. In August of 2017 John paid $10,000 for the fall semester tuition. If John takes the full $10,000 reimbursement form the 529 plan for the tuition,

 

a.            John will have to report $3,334 of the reimbursement [$10,000 x ($48,000/$72,000)] as long-term capital gain income. 

b.            the entire $10,000 reimbursement is tax-free, but John cannot then use the tuition expense to claim education credits.

c.             the entire $10,000 reimbursement is taxable to John, but at his child's tax rate.

d.            John has no income tax consequences.