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Posted by Herb Smith on January 19, 2007, 8:44 pm
Please log in for more thread options raylopez99 wrote:
> By golly, I do believe I am the first person to ever ask
> this question on the internet. I kid you not.
>
> What basis does the donor use when gifting stock that has
> long-term capital gains? This is important because the
> donor is trying to stay under the $12000 a year (adjusted
> for inflation) gift tax return reporting requirement.
>
> Don't tell me about the donee (the gift receipient)--the
> internet is legion with answers to this question. I am
> asking about the donor.
>
> Concrete example:
>
> Granma wants to gift a stock, Castro Boat Systems (CBS) (of
> Miami, FL), she bought in 1959 for $1 a share.
>
> As good luck would have it, the dang thing is actually worth
> $10 a share today.
>
> Granma is in the highest tax bracket and wants to gift the
> stock to her deadbeat nephew Ray, who is in the lowest
> bracket, so he may sell this stock in 2008. She wants to
> stay under the $12000 a year ($24000 a year if spouse
> included; indexed for inflation) ceiling so that she may
> avoid having to file a gift tax return form (remember, she's
> paranoid about reporting stuff with the government).
>
> How many shares can Granma give Ray and stay under the
> $12000 limit? Is it 12000 shares ($12000/$1), or 1200 shares
> ($12000/$10)? Assume Granma has a unlimited number of
> shares to give, so it's feasible.
>
> IRS publication 551, as typical for most IRS publications,
> was full of introductory material and worthless (albeit only
> 12 pages long instead of the usual 100 pages of fluff).
The value of a gift is its FMV at the time of the gift. So,
if the stock is currently worth $10/share, she would be
limited to 1,200 shares before gift tax reporting is
required. Original cost is immaterial for this limit, but
transfers to the donee as his/her cost basis for future sale
of the stock (in most cases). He also gets her holding
period for short or long term capital gain consideration
(e.g. he could sell the stock immediately and get LTCG
treatment of the gain).
Maybe you haven't seen much about this on the Internet
because the value of a gift is a basic premise of gift
giving (i. e. FMV at time of gift).
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