subject: Property Received As A Gift Vs. An Inheritance [print this page] When taxpayers receive property by ways other than purchase, some complex tax events are triggered. There are various taxes affecting transferred property. In addition, some important record keeping is required by recipients of transferred property. A registered tax agent is usually beneficial at sorting out the correct tax consequences for property received as a gift.
The most important consideration involving the transfer of property is whether it is received as inheritance or during the lifetime of the donor. This is because the recipient pays capital gain tax upon selling the property in the future. To calculate the capital gain requires the seller's basis. Because the property was transferred to the seller, the basis is determined by how the transfer occurred. Among the benefits of tax continuing education by enrolled agents is obtaining knowledge for these types of calculations.
A gift during the life of a donor retains its same basis. That is, the basis of the donor transfers to the recipient of the gift. However, the recipient of inherited property has a basis of the fair market value of the property on the date of the decedent's death. The lower tax rate on long-term capital gain applies to inherited property regardless of how long it's held by the recipient. But the holding period for gifted property begins with the purchase date of the donor.
Another type of tax is also assessed on gifts and estates. A donor of property pays tax on the value of the gift. However, there is a threshold amount that's excluded from gift tax. For 2010, this limit is $13,000 of gifts to one person during the calendar year. No gift tax is owned for property with less value than this annual exclusion, which is adjusted each year for the cost-of-living. Annual tax updates about such subjects is among the coursework in meeting an enrolled agent education requirement.
Estates are assessed a tax on the value of property at the time of the decedent's death. Part of the estate value is exempt from the tax. This exemption amount was $1,000,000 for 2009 estate tax returns. Estates with higher values are subject to the tax. The figure is subject to adjustments by tax legislation. EA CPE also covers these tax law changes.
The gift tax and the estate tax are actually the same section of the tax code. The exemption from estate tax is a lifetime exclusion that applies to an individual's estate and taxable gifts. This is referred to as the unified credit. It applies to the combination of gifts during a person's life and the value of property left to heirs after death. An individual can apply the unified credit to any gifts in order to avoid gift tax. However, a person who uses some of the credit for lifetime gifts has a reduction in the amount of credit available for excluding his estate property from tax. Fortunately for taxpayers, these complicated issues are easily resolved with professional help from those with continuing education tax information.
