C12 18 their gift tax liabilities will not

C12-18 Their gift tax liabilities will not necessarily be identical. Their marginal tax rates may
differ and their unused unified credit amount may differ because their taxable gifts made in
previous periods will not necessarily be the same. pp. C12-23 through C12-25.
C12-19 The rate schedule for the current period is used to determine the tax on taxable gifts of
previous periods. The rate increase described in the problem will not cause an additional gift tax
liability to be incurred in the current period. p. C12-25.
C12-20 By making an inter vivos transfer of the apartment building, the transfer tax value of the
building would be frozen at $2,400,000. On the other hand, the donee's basis would be the
donor's lower tax basis; consequently, the donee would likely have to report a large gain upon
disposition. The apartment is producing a net loss, and it is not a good strategy to shift losses to
persons in lower tax brackets. Also, the daughter might have trouble deducting the loss because
of the passive activity loss limitation. Making a gift of the stock would also freeze its value for
transfer tax purposes at $2,400,000. The donee would not receive a step-up in basis, but this fact
is not as much of a drawback as for the apartment building because the stock's adjusted basis and
FMV are closer together and unlike for the building, cost recovery deductions are not available
on the stock. The dividend income would be shifted to a taxpayer in a lower tax bracket.
However, with her increased income from such a large stock investment, the daughter would
probably be placed in the highest income tax bracket. Even so, it probably would be preferable
to gift the stock instead of the apartments. pp. C12-25 through C12-27.
C12-21 Marcy should give Phil approximately $615,000 of assets. She would not make a
taxable gift because of the annual exclusion and marital deduction. If Phil wills his assets to
someone other than Marcy, he will have taken full advantage of his unified credit, the majority
of which otherwise would have been wasted. Thus, $615,000 of property will have been shifted
off the transfer tax rolls. In addition, the basis of the assets will be stepped-up to their value as
of Phil's date of death, assuming he does not will them back to Marcy. pp. C12-26 and C12-27.
C12-22 a. Marcy's taxable gift is zero because of her $10,000 exclusion and $605,000
marital deduction. Phil's taxable estate is $625,000 ($615,000 from Marcy + $10,000 of his own
property), but because of the unified credit his estate tax liability is zero.
b. She should give him the stock. If he does not will the gifted property to her, the
property's basis will be stepped-up to its date of death value. Because of the larger appreciation
inherent in the stock (compared with the land), more appreciation can be removed from the
income tax rolls by letting the stock pass through Phil's estate to the children. pp. C12-26 and
C12-27.