Enrolled Agent > EA - Part 1: Individuals > Unit 18: Estate and Gift Taxes for Individuals > Flashcards

Unit 18: Estate and Gift Taxes for Individuals Flashcards

Understand the fundamentals of federal estate and gift taxes and how they impact individual tax returns. (52 cards)

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1
Q

What is the estate tax?

A

A tax on the transfer of assets or property from an individual’s estate to a decedent’s beneficiaries after death.

The estate tax is not an income tax but is imposed on the transfer of property after a person’s death.

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2
Q

What was the estate tax exemption amount in 2025?

A

$13,990,000 per decedent.

This exemption is indexed for inflation and remains at the current levels through 2025.

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3
Q

What is the top estate and gift tax rate?

A

40%

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4
Q

What is the annual gift tax exclusion for 2025?

A

$19,000 per recipient.

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5
Q

Who is a personal representative?

A

A living person appointed by the courts to administer an estate after a taxpayer has died.

Executors are appointed when the decedent has a will, and administrators are appointed when the decedent dies without a will.

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6
Q

What forms might a personal representative need to file for a decedent?

A
  • Form 1040: Final Income Tax Return for the Decedent
  • Form 1041: U.S. Income Tax Return for Estates and Trusts
  • Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return
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7
Q

What is IRS Form 56 used for?

A

To inform the IRS of the creation (or termination) of a fiduciary relationship for another party.

An executor should submit the form to establish their authority to act on behalf of the estate.

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8
Q

How should executor fees be reported if the executor is not in the business of being an executor?

A

As ‘other income’ on Schedule 1 of the executor’s individual Form 1040.

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9
Q

What happens if an executor distributes estate assets before paying taxes?

A

The executor might be held personally liable for the tax debt.

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10
Q

Is a decedent’s final tax return treated as a short tax year?

A

No, the decedent’s year of death is not treated as a short tax year.

The decedent’s final income tax return is filed on the same form that woud hve been used if the taxpayer were still alive is due on April 15th of the year following the taxpayer’s death.

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11
Q

What is Income in Respect of a Decedent?

(IRD)

A

Taxable income that was earned but not received by the decedent by the time of death.

IRD is reported on the tax return of the person or entity that receives the income, retaining the same tax nature as if the deceased taxpayer were alive.

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12
Q

Which form is used to report an estate’s income, deductions, and income tax liability?

A

Form 1041, Annual Income Tax Return for Estates and Trusts.

Form 1041 reports current income and deductions, income distribution deductions, and any income tax liability. It is required for any domestic estate with gross income of $600 or more or a beneficiary who is a nonresident alien.

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13
Q

True or False:

Wages paid after an employee’s death are subject to federal income tax withholding.

A

False

They are not subject to income tax withholding but are subject to FICA taxes if paid in the year of death.

Wages paid after an employee’s death are not subject to federal income tax withholding. However, they are considered IRD and are taxable to the recipient.

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14
Q

What is the Estate Tax Deduction?

A

It’s a deduction for income in respect of a decedent (IRD) that was included in the decedent’s estate and subject to estate tax. The beneficiary claims it as a miscellaneous itemized deduction on Schedule A.

The deduction is allowed in the same tax year the beneficiary receives the income, but only if the estate was subject to estate tax.

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15
Q

What is the maximum estate tax rate in 2025?

A

40%

The estate tax is applied after the taxable estate is computed and added to the value of lifetime taxable gifts.

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16
Q

Fill in the blank:

The estate tax exclusion is $_____ million in 2025.

A

13.99

The exclusion amount can eliminate all or a portion of the gross estate tax.

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17
Q

What is the ‘portability’ or Deceased Spousal Unused Exclusion?

(DSUE)

A

It allows a surviving spouse to apply the unused portion of their deceased spouse’s estate tax exclusion to their own estate, effectively increasing their available exclusion amount.

This rule allows the surviving spouse to benefit from the unused portion of the exclusion amount.

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18
Q

What items are included in the gross estate on Form 706?

A
  • Real property owned by the decedent
  • Tangible personal property
  • Financial accounts
  • Stocks and bonds
  • Life insurance proceeds
  • Retirement accounts
  • Business interests
  • Certain trust assets
  • Property transferred within three years before death

The gross estate includes the fair market value of all tangible and intangible property owned by the decedent at the time of death.

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19
Q

Which form is used to report estate tax?

A

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return

This form is due nine months after the decedent’s death, with a six-month extension allowed.

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20
Q

What is the due date for filing Form 1041?

A

The fifteenth day of the fourth month following the end of the entity’s tax year.

An automatic extension of five-and-one-half months is available if Form 7004 is filed by the original due date.

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21
Q

What deductions can be made from the gross estate on Form 706 to determine the taxable estate?

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A
  • Funeral expenses paid from the estate
  • Administrative expenses
  • Debts owed at the time of death
  • Marital deduction
  • Charitable bequests
  • State death tax deduction
22
Q

Are federal estate taxes deductible from the gross estate?

23
Q

When are property taxes deductible on Form 706?

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A

Only if they accrue under state law prior to the decedent’s death.

24
Q

How can unpaid medical expenses at the time of death be treated for tax purposes?

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A

They can be deducted from the estate, or if paid by the estate within one year, they can be treated as paid by the deceased and deducted on Form 1040.

25
What is the **unlimited marital deduction** in estate tax?
It allows spouses to transfer an **unlimited amount of property** to one another during their lifetimes or at death **tax-free**, provided the receiving spouse is a **U.S. citizen**.
26
What is the **Deceased Spousal Unused Exclusion**? | (DSUE)
An election to transfer the **unused portion** of the decedent’s predeceased spouse’s basic exclusion to the **surviving spouse**. ## Footnote This election is made by fling an estate tax return, form 706.
27
Are inheritances taxable to the beneficiary for federal income tax purposes?
No
28
How are **inherited retirement accounts** taxed?
Distributions are generally subject to **income tax** when received, but not to an **early-withdrawal penalty** regardless of the beneficary's age.
29
What is the basis of property **inherited** from a decedent?
* The FMV on the **date of death** * FMV on an **alternate valuation date**, if elected * Value under a **special-use valuation** method, if elected * Decedent’s **adjusted basis** in land for qualified conservation easements
30
How is **jointly owned property** treated in a decedent’s gross estate?
The value of the decedent’s interest in jointly owned property is included in the gross estate. * For **spouses with joint tenancy**, 50% is included. * For **non-spouses**, the **full value** is included unless the survivor proves their contribution.
31
What is the **estate tax filing threshold** for nonresident aliens?
$60,000 in U.S.-situated assets.
32
What is the **filing requirement** for an executor of a **nonresident alien's estate**?
Must file **Form 706-NA** if the fair market value of U.S.-situated assets exceeds **$60,000**. ## Footnote Form 706-NA is the United States Estate (and Generation-Skipping) Tax Return for estates of nonresident aliens.
33
What is the **Generation-Skipping Transfer Tax**? | (GST)
A tax on gifts or bequests made to '**skip persons**,' who are usually **grandchildren** or individuals more than **37½ years younger** than the donor. ## Footnote The GST is assessed separately from estate and gift tax and is imposed at estate tax rates with a maximum of 40%.
34
What types of payments are **exempt** from **gift tax and GST**?
Payments made directly to educational or medical institutions for **tuition or medical expenses** on behalf of a **skip person**. ## Footnote These payments do not have any reporting requirement regardless of the amount.
35
Which gifts are **not taxable** and do not need to be reported?
* Gifts not exceeding the annual exclusion amount * Tuition or medical expenses paid directly to institutions * Unlimited gifts to a U.S. citizen spouse * Gifts to political organizations for its own use * Gifts to qualifying charities * A parent’s support for a minor child ## Footnote Support required by legal obligation, such as a divorce decree, is also included.
36
What is **Form 709** used for?
To report **U.S. Gift** (and Generation-Skipping Transfer) **Tax**. ## Footnote It cannot be e-filed and must be filed on paper.
37
When must Form 709 be filed?
By **April 15** of the following year, unless extended. ## Footnote If the donor dies during the year, the deadline may align with the estate tax return due date.
38
What is **gift splitting**?
A gift made by one spouse is treated as made **one-half by each spouse**, letting a married couple give up to $38,000 to one donee in 2025 without a taxable gift. ## Footnote A Notice of Consent must be attached to the donor's Form 709 starting in 2024.
39
How is the **donee’s basis** in gifted property determined when **FMV** is below the donor’s basis?
Use the donor’s **basis** for **gain** and **FMV** at the time of the gift for **loss**.
40
What is the **unified credit** in the context of estate and gift taxes?
The combination of the **lifetime gift tax** exclusion and **estate tax** exclusion. ## Footnote For 2025, the estate and gift tax exclusion is $13,990,000, and the applicable credit amount is $5,541,800.
41
# True or False: A gift tax return is required if a gift exceeds the annual exclusion amount.
True ## Footnote If a gift exceeds the annual exclusion amount, a gift tax return must be filed.
42
What happens when a taxpayer uses the **unified credit** to offset gift tax?
It **reduces** the amount of credit available in later years to offset **gift or estate taxes**.
43
When spouses elect gift splitting, what **filing requirement** applies?
Each spouse must file a separate **Form 709**, unless one spouse files with the other spouse’s consent attached.
44
For gifted property later sold at a loss, what **basis** is used?
The lower of the donor’s adjusted basis or the FMV on the date of the gift.
45
# True or False: A decedent's final tax return can include the full standard deduction.
True ## Footnote The decedent's year of death is not treated as a short tax year, allowing the full standard deduction and applicable credits.
46
How should wages paid after an **employee's death** be reported?
On **Form 1099-MISC** to the recipient. ## Footnote No Form W-2 should be issued in the deceased employee's name for wages paid after the year of death.
47
What is the **due date** for filing **Form 706**?
Nine months **after** the decedent's death. ## Footnote A six-month extension is allowed for filing Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return.
48
Can **estates** claim the Child Tax Credit or the Earned Income Tax Credit?
No ## Footnote These credits can be claimed on the decedent’s final return instead.
49
What is the **Net Investment Income Tax** rate for estates and trusts?
3.80% ## Footnote This tax is similar to that for individuals and must be reported on Form 8960.
50
What is required to qualify for the **unlimited marital deduction**?
* The spouse receiving the assets must be a U.S. citizen. * The spouse must have outright ownership of the assets.
51
What is the **alternate valuation date** elected by an estate for valuation purposes?
Six months **after** the decedent’s date of death.
52
What is the applicable **credit amount** for 2025?
$5,541,800.00
EA - Part 1: Individuals
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