Stock cost basis and gift tax exclusion ($12k a year) question


W

W. Baker

(e-mail address removed) wrote: : When grandma gifts the stock, does she need to
put something in Schedule D, because it's the disposition of an asset?
What should she put as the sales price? If she puts in the FMV, then that
makes it look like she owes capital gains tax. But she doesn't owe capital
gains tax. It's the grandchild that will owe. So does she just set the
"sales price" to her basis, so it comes out as no captal gain for her? Or
does she put $0, because she did not re eive any compensation. Or does she
indicate it as a gift in some way on Schecule D, or leave it off Schedule
D altogether?

When I did this dquite a few years ago(so my information may be dated) I
was instructed to value the gift at the fair market value, but ot give the
basis of the gift to the recipient(or parent if child is too young) so
that when the stock is sold in the future my basis woudl b the basis the
recipient will use. No capital gains tax is due until the stock is sold
by the recipient.

Wendy Baker
 
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A

Alan

(e-mail address removed) wrote: : When grandma gifts the stock, does she need to
put something in Schedule D, because it's the disposition of an asset?
What should she put as the sales price? If she puts in the FMV, then that
makes it look like she owes capital gains tax. But she doesn't owe capital
gains tax. It's the grandchild that will owe. So does she just set the
"sales price" to her basis, so it comes out as no captal gain for her? Or
does she put $0, because she did not re eive any compensation. Or does she
indicate it as a gift in some way on Schecule D, or leave it off Schedule
D altogether?

When I did this dquite a few years ago(so my information may be dated) I
was instructed to value the gift at the fair market value, but ot give the
basis of the gift to the recipient(or parent if child is too young) so
that when the stock is sold in the future my basis woudl b the basis the
recipient will use. No capital gains tax is due until the stock is sold
by the recipient.

Wendy Baker
I don't understand Wendy's answer. The question was whether Grandma
(Donor) needed to put something on her Schedule D. Bob Sandler's answer
is correct. Grandma makes no entry on a Schedule D for the gift.
Grandma should provide the donee with her cost basis. If the FMV on the
date of the gift is less than the cost basis, then she should also
provide the FMV. If the FMV is less on the date of gift, the donee would
compute a gain on the sale by using the basis. A loss would be computed
using the FMV.
If the FMV is equal to or higher than the basis, then any gain or loss
in the future is figured on the basis.

If the FMV on the date of gift plus any other gifts made to that same
donee in the same year exceeds the annual gift tax exclusion, then
Grandma has to file a Gift tax return.
 

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