Joseph and Jill have been married for 20 years. Joseph inherited a house worth $2,500,000 from his father. Assume that the annual gift tax exclusion is $20,000. Joseph is gifting the house to Jill as long as she puts an apple orchard on the land. Jill decided in the end to put a swimming pool in place of the apple orchard. What amount of the $2,500,000 can Joseph give to Jill without incurring a gift tax liability?
Incorrect A.
$2,500,000
B.
$0
C.
$20,000
D.
$1,000,000
You answered A. The correct answer is B.
The gift tax provision for gifts from one spouse to another allows for a marital deduction; an unlimited deduction is available for all property given to a spouse.
A gift tax marital deduction does not apply to a transfer of a terminable interest in property. A terminable interest is one that will terminate on a lapse of time or on the occurrence, or failure to occur, of a contingency.
Therefore, Joseph will not be able to claim the gift tax exclusion. The gift was contingent on Jill planting an apple orchard, and she decided on a swimming pool instead.
I'm still struggling with this being 0!
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