Part IV - Gift Tax
0223 Publ 904 (PDF) · 2026-10-03 edition · updated 2026-10-04 · United States
When a donor makes a gift to a donee subject to the condition that the donee pay the gift tax, the value of the gift is reduced by the amount of the gift tax paid by the donee. This situation creates an interrelated computation resulting in a net gift computation. The net gift computation may be solved either through the Trial and Substitution method or through the Algebraic method; however, as shown below, the Trial and Substitution method requires multiple trials to solve the problem.
The Algebraic method uses the following formula to compute the gift tax in a net gift situation:
Tentative Tax = Gift tax
(1 plus Rate of Tax)
The examples shown below illustrate the use of both Trial and Substitution method and the Algebraic method to determine the gift tax in a net gift situation.
Income Tax: A donor who makes a gift subject to the condition that the donee pay the gift tax may realize taxable income for income tax purposes. If the gift taxes paid by the donee exceed the donor’s adjusted basis in the transferred property, the excess is taxable income to the donor.
State law: State gift tax law may affect your net gift computation for Federal gift tax purposes. Be sure to check any state gift tax law that may affect your net gift computation.
22
Estate and Gift Tax Interrelated Computations
Gift Tax Example 1 – Trial and Substitution Method
Gift is not split with spouse.
No prior period gifts were made by the donor.
No state gift tax is imposed.
In 2020, the donor made a gift with a fair market value of $50,000,000.00 and the donee agreed to pay the gift tax on the transfer. On the gift tax return, the donor claimed the $15,000.00 annual exclusion. The donor made no prior period taxable gifts and no state gift tax was imposed on the transfer. This example uses the conventional option to determine the gift tax. Trials 1 through 4 and 22 through 25 are shown below.
Trial 1
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of trial Federal gift tax
Trial taxable gifts
Minus: Bracket from Table A, Column A
Remainder
Times: Marginal rate from Table A, Column D
Product
Plus: Tax on bracket from Table A, Column C
Trial gross gift tax
Minus: Applicable credit
Trial gift tax
Trial 3
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of trial Federal gift tax
Trial taxable gifts
Minus: Bracket from Table A, Column A
Remainder
Times: Marginal rate from Table A, Column D
Product
Plus: Tax on bracket from Table A, Column C
Trial gross gift tax
Minus: Applicable credit
Trial gift tax
Estate and Gift Tax Interrelated Computations
23
0.00
x 0.40
x 0.40
Trial 2
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 15,362,000.00
Trial total value of gifts $34,638,000.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $34,623,000.00
2) Computation of trial Federal gift tax
Trial taxable gifts $34,623,000.00
Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $33,623,000.00
Times: Marginal rate from Table A, Column D x 0.40
Product $13,449,200.00
Plus: Tax on bracket from Table A, Column C 345,800.00
Trial gross gift tax $13,795,000.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $9,217,200.00
Trial 4
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 11,675,120.00
Trial total value of gifts $38,324,880.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $38,309,880.00
2) Computation of trial Federal gift tax
Trial taxable gifts $38,309,880.00
Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $37,309,880.00
Times: Marginal rate from Table A, Column D x 0.40
Product $14,923,952.00
Plus: Tax on bracket from Table A, Column C 345,800.00
Trial gross gift tax $15,269,752.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,691,952.00
Trial 22 Trial 23
1) Analysis of gifts of donor 1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00 Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.19 Minus: Gift tax payable by donee 10,972,857.12
Trial total value of gifts $39,027,142.81 Trial total value of gifts $39,027,142.88
Minus: Annual exclusion 15,000.00 Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.81 Trial taxable gifts $39,012,142.88
2) Computation of trial Federal gift tax 2) Computation of trial Federal gift tax
Trial taxable gifts $39,012,142.81 Trial taxable gifts $39,012,142.88
Minus: Bracket from Table A, Column A 1,000,000.00 Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $38,012,142.81 Remainder $38,012,142.88
Times: Marginal rate from Table A, Column D x 0.40 Times: Marginal rate from Table A, Column D x 0.40
Product $15,204,857.12 Product $15,204,857.15
Plus: Tax on bracket from Table A, Column C 345,800.00 Plus: Tax on bracket from Table A, Column C 345,800.00
Trial gross gift tax $15,550,657.12 Trial gross gift tax $15,550,657.15
Minus: Applicable credit 4,577,800.00 Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.12 Trial gift tax $10,972,857.15
Trial 24 Trial 25
1) Analysis of gifts of donor 1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00 Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.15 Minus: Gift tax payable by donee 10,972,857.14
Trial total value of gifts $39,027,142.85 Trial total value of gifts $39,027,142.86
Minus: Annual exclusion 15,000.00 Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.85 Trial taxable gifts $39,012,142.86
2) Computation of trial Federal gift tax 2) Computation of trial Federal gift tax
Trial taxable gifts $39,012,142.85 Trial taxable gifts $39,012,142.86
Minus: Bracket from Table A, Column A 1,000,000.00 Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $38,012,142.85 Remainder $38,012,142.86
Times: Marginal rate from Table A, Column D x 0.40 Times: Marginal rate from Table A, Column D x 0.40
Product $15,204,857.14 Product $15,204,857.14
Plus: Tax on bracket from Table A, Column C 345,800.00 Plus: Tax on bracket from Table A, Column C 345,800.00
Trial gross gift tax $15,550,657.14 Trial gross gift tax $15,550,657.14
Minus: Applicable credit 4,577,800.00 Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.14 Trial gift tax $10,972,857.14
Gift Tax Example 2 – Algebraic Method
Gift is not split with spouse.
No prior period gifts were made by the donor.
No state gift tax is imposed.
The facts are the same as in Gift Tax Example 1 and the example uses the Algebraic method to compute the gift tax. In the example below, the letter “ T ” stands for the Federal gift tax.
24
Estate and Gift Tax Interrelated Computations
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee T
Total value of gifts $50,000,000.00 - T
Minus: Annual exclusion 15,000.00
Taxable gifts $49,985,000.00 - T
2) Computation of Federal gift tax
Taxable gifts $49,985,000.00 - T
Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $48,985,000.00 - T
Times: Marginal rate from Table A, Column D x 0.40
Product $19,594,000.00 - .40T
Plus: Tax on bracket from Table A, Column C 345,800.00
Gross gift tax $19,939,800.00 - 0.40T
Minus: Applicable credit 4,577,800.00
Gift tax $15,362,000.00 - 0.40T
3) Solve for T
T = $15,362,000.00 - 0.40T
T + 0.40T = $15,362,000.00
1.40T = $15,362,000.00
T = $15,362,000.00 $10,972,857.14
1.40
Proof
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.14
Total value of gifts $39,027,142.86
Minus: Annual exclusion 15,000.00
Taxable gifts $39,012,142.86
2) Computation of Federal gift tax
Taxable gifts $39,012,142.86
Minus: Bracket from Table A, Column A 1,000,000.00
Remainder $38,012,142.86
Times: Marginal rate from Table A, Column D x 0.40
Product $15,204,857.14
Plus: Tax on bracket from Table A, Column C 345,800.00
Gross gift tax $15,550,657.14
Minus: Applicable credit 4,577,800.00
Gift tax $10,972,857.14
Estate and Gift Tax Interrelated Computations
25
Gift Tax Example 3 - Trial and Substitution Method
Donor and spouse elected to split gifts.
No prior period taxable gifts.
No state gift tax is imposed.
In 2020, the donor made a gift with a fair market value of $50,000,000.00 and the donor’s spouse also made a gift of $50,000,000.00. The donor and their spouse agreed to split the gifts. Additionally, the donee agreed to pay the gift tax on the transfers. Under IRC 2513, the gifts are considered as being made one-half by the donor and one-half by the donor’s spouse. On the gift tax returns, each spouse claimed an annual exclusion of $15,000.00. Neither the donor nor the donor’s spouse made prior period taxable gifts. No state gift tax was imposed on the transfer. This example uses the alternate option to determine the gift tax. Trials 1 through 4 and 22 through 25 are shown below.
26
Estate and Gift Tax Interrelated Computations
Trial 1
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
Estate and Gift Tax Interrelated Computations
27
0.00
0.00
x 0.40
0.00
0.00
0.00
x 0.40
0.00
Trial 2
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 15,362,000.00
Donor's trial net transfer $34,638,000.00
Minus: One-half to be reported by spouse 17,319,000.00
Remainder $17,319,000.00
Plus: Spouse's gifts to be reported by donor 17,319,000.00
Trial total value of gifts $34,638,000.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $34,623,000.00
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $34,623,000.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $34,623,000.00
Times: Marginal rate from Table A, Column D x 0.40
Product $13,849,200.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $13,795,000.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $13,795,000.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $9,217,200.00
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 15,362,000.00
Spouse's trial net transfer $34,638,000.00
Minus: One-half to be reported by donor 17,319,000.00
Remainder $17,319,000.00
Plus: Donor's gifts to be reported by spouse 17,319,000.00
Trial total value of gifts $34,638,000.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $34,623,000.00
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $34,623,000.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $34,623,000.00
Times: Marginal rate from Table A, Column D x 0.40
Product $13,849,200.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $13,795,000.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $13,795,000.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $9,217,200.00
Trial 3
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
0.00
x 0.40
0.00
0.00
x 0.40
0.00
28
Trial 4
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 11,675,120.00
Donor's trial net transfer $38,324,880.00
Minus: One-half to be reported by spouse 19,162,440.00
Remainder $19,162,440.00
Plus: Spouse's gifts to be reported by donor 19,162,440.00
Trial total value of gifts $38,324,880.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $38,309,880.00
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $38,309,880.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $38,309,880.00
Times: Marginal rate from Table A, Column D x 0.40
Product $15,323,952.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,269,752.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,269,752.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,691,952.00
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 11,675,120.00
Spouse's trial net transfer $38,324,880.00
Minus: One-half to be reported by donor 19,162,440.00
Remainder $19,162,440.00
Plus: Donor's gifts to be reported by spouse 19,162,440.00
Trial total value of gifts $38,324,880.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $38,309,880.00
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $38,309,880.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $38,309,880.00
Times: Marginal rate from Table A, Column D x 0.40
Product $15,323,952.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,269,752.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,269,752.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,691,952.00
Estate and Gift Tax Interrelated Computations
Trial 22
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
0.00
x 0.40
0.00
0.00
x 0.40
0.00
Trial 23
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.12
Donor's trial net transfer $39,027,142.88
Minus: One-half to be reported by spouse 19,513,571.44
Remainder $19,513,571.44
Plus: Spouse's gifts to be reported by donor 19,513,571.44
Trial total value of gifts $39,027,142.88
Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.88
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $39,012,142.88
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $39,012,142.88
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.15
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,550,657.15
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,550,657.15
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.15
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.12
Spouse's trial net transfer $39,027,142.88
Minus: One-half to be reported by donor 19,513,571.44
Remainder $19,513,571.44
Plus: Donor's gifts to be reported by spouse 19,513,571.44
Trial total value of gifts $39,027,142.88
Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.88
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $39,012,142.88
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $39,012,142.88
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.15
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,550,657.15
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,550,657.15
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.15
29
Estate and Gift Tax Interrelated Computations
Trial 24
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
Estate and Gift Tax Interrelated Computations
0.00
x 0.40
0.00
0.00
x 0.40
0.00
30
Trial 25
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.14
Donor's trial net transfer $39,027,142.86
Minus: One-half to be reported by spouse 19,513,571.43
Remainder $19,513,571.43
Plus: Spouse's gifts to be reported by donor 19,513,571.43
Trial total value of gifts $39,027,142.86
Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.86
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $39,012,142.86
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $39,012,142.86
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.14
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,550,657.14
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,550,657.14
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.14
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 10,972,857.14
Spouse's trial net transfer $39,027,142.86
Minus: One-half to be reported by donor 19,513,571.43
Remainder $19,513,571.43
Plus: Donor's gifts to be reported by spouse 19,513,571.43
Trial total value of gifts $39,027,142.86
Minus: Annual exclusion 15,000.00
Trial taxable gifts $39,012,142.86
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $39,012,142.86
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $39,012,142.86
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.14
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $15,550,657.14
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $15,550,657.14
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,972,857.14
5) Total gift tax
Donor’s gift tax $10,972,857.14
Plus spouse’s gift tax 10,972,857.14
Total gift tax $21,945,714.28
Gift Tax Example 4 – Algebraic Method
Spouse did not make any gifts.
Donor and spouse elected to split gifts
No prior period taxable gifts.
No state gift tax is imposed.
In 2020, the donor made a gift with a fair market value of $100,000,000.00. The donor and their spouse agreed to split the gift. Additionally, the donee agreed to pay the gift tax on the transfers. Under IRC 2513, the gift is considered as being made one-half by the donor and one-half by the donor’s spouse. On the gift tax returns, each spouse claimed an annual exclusion of $15,000.00. Neither the donor nor the donor’s spouse made prior period taxable gifts. No state gift tax was imposed on the transfer. This example uses the Algebraic method to determine the gift tax. In the example below, the letter “ T ” stands for the Federal gift tax, and that figure is rounded down to the nearest two decimal places to match the rounding in the proof.
Estate and Gift Tax Interrelated Computations
31
1) Analysis of gifts of donor
Gross value of gifts of donor $100,000,000.00
Minus: Gift tax payable by donee T
Donor's net transfer $100,000,000.00 - T
Minus: One-half to be reported by spouse 50,000,000.00 - 0.50T
One-half to be reported by donor $50,000,000.00 - 0.50T
2) Computation of donor's Federal gift tax
Total value of gifts of donor $50,000,000.00 - 0.50T
Minus: Annual exclusion 15,000.00
Taxable gifts $49,985,000.00 - .50T
Plus: Taxable gifts for prior periods 0.00
Total taxable gifts $49,985,000.00 - .50T
Times: Marginal rate from Table A, Column D x 0.40
Product $19,994,000.00 - 0.20T
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $19,939,800.00 - 0.20T
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $19,939,800.00 - 0.20T
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods. 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $15,362,000.00 - 0.20T
3) Computation of spouse's Federal gift tax
Total value of gifts of spouse $50,000,000.00 - 0.50T
Minus: Annual exclusion 15,000.00
Taxable gifts $49,985,000.00 - 0.50T
Plus: Taxable gifts for prior periods 0.00
Total taxable gift $49,985,000.00 - 0.50T
Times: Marginal rate from Table A, Column D x 0.40
Product $19,994,000.00 - 0.20T
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $19,939,800.00 - 0.20T
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $19,939,800.00 - 0.20T
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods. 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $15,362,000.00 - 0.20T
4) Computation of total Federal gift tax
Donor's gift tax $15,362,000.00 - 0.20T
Plus: Spouse's gift tax 15,362,000.00 - 0.20T
Total gift tax $30,724,000.00 - 0.40T
5) Solve for T
T = $30,724,000.00 = $21,945,714.29
1.40 32
Estate and Gift Tax Interrelated Computations
Proof
1) Analysis of gifts
Gross value of gifts of donor $100,000,000.00
Minus: Gift tax payable by donee 21,945,714.29
Donor's net transfer $78,054,285.71
Minus: One-half to be reported by spouse 39,027,142.86
One-half to be reported by donor $39,027,142.86
2) Computation of donor's Federal gift tax
Total value of gifts of donor $39,027,142.86
Minus: Annual exclusion 15,000.00
Taxable gifts $39,012,142.86
Plus: Taxable gifts for prior periods 0.00
Total taxable gifts $39,012,142.86
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.14
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $15,550,657.14
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $15,550,657.14
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $10,972,857.14
3) Computation of spouse's Federal gift tax
Total value of gifts of spouse $39,027,142.86
Minus: Annual exclusion 15,000.00
Taxable gift $39,012,142.86
Plus: Taxable gifts for prior periods 0.00
Total taxable gift $39,012,142.86
Times: Marginal rate from Table A, Column D x 0.40
Product $15,604,857.14
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $15,550,657.14
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $15,550,657.14
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $10,972,857.14
4) Computation of total Federal gift tax
Donor's gift tax $10,972,857.14
Plus: Spouse's gift tax 10,972,857.14
Total gift tax $21,945,714.28
Estate and Gift Tax Interrelated Computations
33
Gift Example 5 - Trial and Substitution Method
The spouses elected to split gifts.
Donor’s spouse had made prior period taxable gifts.
Donor’s spouse had used applicable credit against gift tax in prior periods.
No state gift tax is imposed.
In 2020, the donor made a gift with a fair market value of $50,000,000.00 and the donor’s spouse also made a gift of $50,000,000.00. The donor and their spouse agreed to split the gift. Additionally, the donee agreed to pay the gift tax on the transfers. Under IRC 2513, the gift is considered as being made one-half by the donor and one-half by the donor’s spouse. On the gift tax returns, each spouse claimed an annual exclusion of $15,000.00. The donor’s spouse had prior period taxable gifts equal to $20,000,000.00 and had used $4,505,800.00 in applicable credit for against gift tax for prior periods. No state gift tax was imposed on the transfer. This example uses the alternate option to determine the gift tax. Trials 1 through 4 and 22 through 25 are shown below.
34
Estate and Gift Tax Interrelated Computations
Trial 1
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit
Trial gift tax
0.00
0.00
x 0.40
0.00
0.00
x 0.40
35
Trial 2
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 15,362,000.00
Donor's trial net transfer $34,638,000.00
Minus: One-half to be reported by spouse 17,319,000.00
Remainder $17,319,000.00
Plus: Spouse's gifts to be reported by donor 15,039,000.00
Trial total value of gifts $32,358,000.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $32,343,000.00
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $32,343,000.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $32,343,000.00
Times: Marginal rate from Table A, Column D x 0.40
Product $12,937,200.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $12,883,000.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $12,883,000.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $8,305,200.00
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 19,922,000.00
Spouse's trial net transfer $30,078,000.00
Minus: One-half to be reported by donor 15,039,000.00
Remainder $15,039,000.00
Plus: Donor's gifts to be reported by spouse 17,319,000.00
Trial total value of gifts $32,358,000.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $32,343,000.00
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $32,343,000.00
Plus: Taxable gifts for prior periods 20,000,000.00
Trial total taxable gifts $52,343,000.00
Times: Marginal rate from Table A, Column D x 0.40
Product $20,937,200.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $20,883,000.00
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Trial gross gift tax $12,937,200.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Trial gift tax $12,865,200.00
Estate and Gift Tax Interrelated Computations
Trial 3
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit
Trial gift tax
Estate and Gift Tax Interrelated Computations
0.00
x 0.40
0.00
x 0.40
36
Trial 4
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 11,127,920.00
Donor's trial net transfer $38,872,080.00
Minus: One-half to be reported by spouse 19,436,040.00
Remainder $19,436,040.00
Plus: Spouse's gifts to be reported by donor 17,156,040.00
Trial total value of gifts $36,592,080.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $36,577,080.00
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $36,577,080.00
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $36,577,080.00
Times: Marginal rate from Table A, Column D x 0.40
Product $14,630,832.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $14,576,632.00
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $14,576,632.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $9,998,832.00
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 15,687,920.00
Spouse's trial net transfer $34,312,080.00
Minus: One-half to be reported by donor 17,156,040.00
Remainder $17,156,040.00
Plus: Donor's gifts to be reported by spouse 19,436,040.00
Trial total value of gifts $36,592,080.00
Minus: Annual exclusion 15,000.00
Trial taxable gifts $36,577,080.00
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $36,577,080.00
Plus: Taxable gifts for prior periods 20,000,000.00
Trial total taxable gifts $56,577,080.00
Times: Marginal rate from Table A, Column D x 0.40
Product $22,630,832.00
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $22,576,632.00
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Trial gross gift tax $14,630,832.00
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Trial gift tax $14,558,832.00
Trial 22
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit
Trial gift tax
Estate and Gift Tax Interrelated Computations
$14,881,428.55 Trial gift tax $14,881,428.58
37
0.00
x 0.40
0.00
x 0.40
Trial 23
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,321,428.55
Donor's trial net transfer $39,678,571.45
Minus: One-half to be reported by spouse 19,839,285.73
Remainder $19,839,285.73
Plus: Spouse's gifts to be reported by donor 17,559,285.73
Trial total value of gifts $37,398,571.45
Minus: Annual exclusion 15,000.00
Trial taxable gifts $37,383,571.45
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $37,383,571.45
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $37,383,571.45
Times: Marginal rate from Table A, Column D x 0.40
Product $14,953,428.58
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $14,899,228.58
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $14,899,228.58
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,321,428.58
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 14,881,428.55
Spouse's trial net transfer $35,118,571.45
Minus: One-half to be reported by donor 17,559,285.73
Remainder $17,559,285.73
Plus: Donor's gifts to be reported by spouse 19,839,285.73
Trial total value of gifts $37,398,571.45
Minus: Annual exclusion 15,000.00
Trial taxable gifts $37,383,571.45
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $37,383,571.45
Plus: Taxable gifts for prior periods 20,000,000.00
Trial total taxable gifts $57,383,571.45
Times: Marginal rate from Table A, Column D x 0.40
Product $22,953,428.58
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $22,899,228.58
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Trial gross gift tax $14,953,428.58
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Trial 24
1) Analysis of gifts of donor
Gross value of gifts of donor
Minus: Gift tax payable by donee
Donor's trial net transfer
Minus: One-half to be reported by spouse
Remainder
Plus: Spouse's gifts to be reported by donor
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
2) Computation of donor's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit
Trial gift tax
3) Analysis of gifts of spouse
Gross value of gifts of spouse
Minus: Gift tax payable by donee
Spouse's trial net transfer
Minus: One-half to be reported by donor
Remainder
Plus: Donor's gifts to be reported by spouse
Trial total value of gifts
Minus: Annual exclusion
Trial taxable gifts
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts
Plus: Taxable gifts for prior periods
Trial total taxable gifts
Times: Marginal rate from Table A, Column D
Product
Minus: Subtractive term from Table A, Column E
Gift tax on trial total taxable gifts
Minus: Tax on taxable gifts for prior periods
Trial gross gift tax
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit
Trial gift tax
0.00
x 0.40
0.00
x 0.40
38
Trial 25
1) Analysis of gifts of donor
Gross value of gifts of donor $50,000,000.00
Minus: Gift tax payable by donee 10,321,428.57
Donor's trial net transfer $39,678,571.43
Minus: One-half to be reported by spouse 19,839,285.72
Remainder $19,839,285.72
Plus: Spouse's gifts to be reported by donor 17,559,285.72
Trial total value of gifts $37,398,571.43
Minus: Annual exclusion 15,000.00
Trial taxable gifts $37,383,571.43
2) Computation of donor's trial Federal gift tax
Trial taxable gifts $37,383,571.43
Plus: Taxable gifts for prior periods 0.00
Trial total taxable gifts $37,383,571.43
Times: Marginal rate from Table A, Column D x 0.40
Product $14,953,428.57
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $14,899,228.57
Minus: Tax on taxable gifts for prior periods 0.00
Trial gross gift tax $14,899,228.57
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Trial gift tax $10,321,428.57
3) Analysis of gifts of spouse
Gross value of gifts of spouse $50,000,000.00
Minus: Gift tax payable by donee 14,881,428.57
Spouse's trial net transfer $35,118,571.43
Minus: One-half to be reported by donor 17,559,285.72
Remainder $17,559,285.72
Plus: Donor's gifts to be reported by spouse 19,839,285.72
Trial total value of gifts $37,398,571.43
Minus: Annual exclusion 15,000.00
Trial taxable gifts $37,383,571.43
4) Computation of spouse's trial Federal gift tax
Trial taxable gifts $37,383,571.43
Plus: Taxable gifts for prior periods 20,000,000.00
Trial total taxable gifts $57,383,571.43
Times: Marginal rate from Table A, Column D x 0.40
Product $22,953,428.57
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on trial total taxable gifts $22,899,228.57
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Trial gross gift tax $14,953,428.57
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount
used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Trial gift tax $14,881,428.57
Estate and Gift Tax Interrelated Computations
5) Total Federal gift tax
Donor's gift tax $10,321,428.57
Plus: Spouse's gift tax 14,881,428.57
Total gift tax $25,202,857.14
Gift Tax Example 6 – Algebraic Method.
Donor’s spouse did not make any gifts.
The spouses elected to split gifts.
Donor’s spouse had made prior period taxable gifts.
Donor’s spouse had used applicable credit against gift tax in prior periods.
No state gift tax is imposed.
In 2020, the donor made a gift with a fair market value of $100,000,000.00. The donor and their spouse agreed to split the gift. Additionally, the donee agreed to pay the gift tax on the transfer. Under IRC 2513, the gift is considered as made one-half by the donor and one-half by the donor’s spouse. On the gift tax returns, each spouse claimed an annual exclusion of $15,000.00. The donor’s spouse had prior period taxable gifts equal to $20,000,000.00 and had used $4,505,800.00 in applicable credit for against gift tax for prior periods. No state gift tax was imposed on the transfer. This example uses the Algebraic method to determine the gift tax. In the example below, the letter “ T ” stands for the Federal gift tax.
1) Analysis of gifts of donor
Gross value of gifts of donor $100,000,000.00
Minus: Gift tax payable by donee T
Donor's net transfer $100,000,000.00 - T
Minus: One-half to be reported by spouse 50,000,000.00 - 0.50T
Plus: Spouse's gifts to be reported by donor 0.00
Total value of gifts of donor $50,000,000.00 - 0.50T
2) Computation of donor's Federal gift tax
Total value of gifts of donor $50,000,000.00 - 0.50T
Minus: Annual exclusion 15,000.00
Taxable gifts $49,985,000.00 - 0.50T
Plus: Taxable gifts for prior periods 0.00
Total taxable gifts $49,985,000.00 - 0.50T
Times: Marginal rate from Table A, Column D x 0.40
Product $19,994,000.00 - 0.20T
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $19,939,800.00 - 0.20T
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $19,939,800.00 - 0.20T
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $15,362,000.00 - 0.20T
3) Analysis of gifts of spouse
Gross value of gifts of spouse $0.00
Minus: One-half to be reported by donor 0.00
Plus: Donor's gifts to be reported by spouse 50,000,000.00 - 0.50T
Total value of gifts of spouse $50,000,000.00 - 0.50T
Estate and Gift Tax Interrelated Computations
39
4) Computation of spouse's Federal gift tax
Total value of gifts of spouse $50,000,000.00 - 0.50T
Minus: Annual exclusion 15,000.00
Taxable gifts $49,985,000.00 - 0.50T
Plus: Taxable gifts for prior periods 20,000,000.00
Total taxable gifts $69,985,000.00 - 0.50T
Times: Marginal rate from Table A, Column D x 0.40
Product $27,994,000.00 - 0.20T
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $27,939,800.00 - 0.20T
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Gross gift tax $19,994,000.00 - 0.20T
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Gift tax $19,922,000.00 - 020T
5) Computation of total Federal gift tax
Donor's Federal gift tax $15,362,000.00 - 0.20T
Plus: Spouse's Federal gift tax 19,922,000.00 - 0.20T
Total Federal gift tax $35,284,000.00 - 040T
6) Solve for T
T = $35,284,000.00 = $25,202,857.14
1.4
40
Estate and Gift Tax Interrelated Computations
Proof
1) Analysis of combined gifts
Gross value of gifts of donor $100,000,000.00
Minus: Gift tax payable by donee 25,202,857.14
Donor's net transfer $74,797,142.86
Allocation: One-half to be reported by donor 37,398,571.43
Allocation: One-half to be reported by donor's spouse $37,398,571.43
2) Computation of donor's Federal gift tax
Total value of gifts of donor $37,398,571.43
Minus: Annual exclusion 15,000.00
Taxable gifts $37,383,571.43
Plus: Taxable gifts for prior periods 0.00
Total taxable gifts $37,383,571.43
Times: Marginal rate from Table A, Column D x 0.40
Product $14,953,428.57
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts 14,899,228.57
Minus: Tax on taxable gifts for prior periods 0.00
Gross gift tax $14,899,228.57
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 0.00
Minus: Applicable credit 4,577,800.00
Gift tax $10,321,428.57
3) Computation of spouse's Federal gift tax
Total value of gifts of spouse $37,398,571.43
Minus: Annual exclusion 15,000.00
Taxable gifts $37,383,571.43
Plus: Taxable gifts for prior periods 20,000,000.00
Total taxable gifts $57,383,571.43
Times: Marginal rate from Table A, Column D x 0.40
Product $22,953,428.57
Minus: Subtractive term from Table A, Column E 54,200.00
Gift tax on total taxable gifts $22,899,228.57
Minus: Tax on taxable gifts for prior periods 7,945,800.00
Gross gift tax $14,953,428.57
Applicable credit amount $4,577,800.00
Minus: Applicable credit amount used in prior periods 4,505,800.00
Minus: Applicable credit 72,000.00
Gift tax $14,881,428.57
4) Computation of total Federal gift tax
Donor's gift tax $10,321,428.57
Plus: Spouse's gift tax 14,881,428.57
Total gift tax $25,202,857.14
Estate and Gift Tax Interrelated Computations
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