Connie has some acreage that is valued at $1,500,000. Her daughter would like to build a home on it, but can only afford $500,000. Connie agrees to sell it to her daughter for $500,000. Is there any gift tax consequence as a result of this transaction?
What will be an ideal response?
Connie is considered to have made a gift to her daughter of $1,000,000, the excess of the land's FMV over the consideration received. If this is the only gift that Connie makes to her daughter during the year, she will be able to subtract the $15,000 annual exclusion to arrive at taxable gifts for the current period. To the remaining $985,000, she will add taxable gifts for all prior periods. The gift tax will then be computed, at current rates, on the cumulative taxable gifts. Next, she will subtract the tax on prior gifts computed at current rates and any unified credit available to her. The remaining amount is her gift tax liability for the current period.
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