Gift Tax Paid

[Corduroy Frog]

Some states have gift tax on amounts in excess of $12K threshhold. Even if the Federal applies it to the Estate exemption, payment must be rendered to the state.

My state is one of these. A client had to pay $15K gift tax to the state (not Federal).

Gift tax PAID becomes part of the basis of the gift. §1067 and TTB p. 10-13 of SBV.

If the gift is depreciable equipment, and the other qualifications are met, will the $15K be eligible for s. 179 treatment?

Note that TTB p.9-15 1040V states: "Property acquired by gift, inheritance, or trade, does not qualify for a Section 179 deduction. The deduction may be available in the case of a trade-in for the amount of cash paid in addition to exchange of property." The implication in TTB with this statement is that the qualifying property must be paid in cash.

In the above facts, the $15K tax is in fact paid in cash, however, it is paid by the donor and not the entity operating the equipment. Although the equipment itself does not qualify because of being gifted, the $15K tax itself is NOT gifted, but instead paid to a taxing authority.

What say ye?

[veritas]

I would say no

Sec 179 says property must be purchased. I think it's a stretch to say you purchased it from the state.

It also says property that is inherited is not purchased.

Nice try though.