Tax Preparation Exercise (Week 6)

Gift Tax

1. James A. and Ella R. Polk, ages 70 and 65 respectively, are retired physicians who live at 3319 Taylorcrest Street, Huston, Texas 77079. Their three adult children (Benjamin Polk, Michael Polk, and Olivia Turner) are mature and responsible persons. The Polks have heard that some in congress have proposed lowering the Federal gift tax exclusion to $3 million. Although this change likely will not occur, the Polks feel they should take advantage of the more generous exclusion available under existing law. Thus, the Polks make transfer of many of their high value investment. These and other gifts made during 2017 are summarized below:

		Donor
Asset Transfer		James	Ella
Condominium located in Conroe (TX) acquired in 2009, cost $1.2 million, to Benjamin, Michael and Olivia as equal tenants in common.		1,900,000	$1,900,000
Office building, located in Round Rock (TX) built in 2011, cost $1.8 million, to Benjamin, Michael and Olivia as equal tenants in common.		2,300,000	2,300,000
Vacation ranch in Bandera (TX)inherited by James from his father in 2006, value then $900,000, to Benjamin, Michael, and Olivia as equal joint tenants with right of survivorship		2,600,00	0
Ella used her separate property to reimburse her father(ALAN Roberts)for his heart bypass operation		0	82,000
Paid for daughter's (Olivia's) wedding to John Turner		20,000	20,000
James used his separate property to purchase a new automobile (BMW) as a graduate present (from medical school)for his favorite niece (Carol Polk)		42,000	0

Prepare 2017 gift tax returns form (709) for both of the Polks to compute the total taxable gifts (line 3) for James and Ella; stop with 3 of page 1, but complete pages 2 and 3 of the return.

An election to split gifts is made. The Polks have made no taxable gifts in prior years. Relevant Social Security numbers are 123-45-6789 James and 123-45-6788 (Ella).