|
Posted by researcher on March 27, 2008, 11:12 pm
Please log in for more thread options
Investor never sold any stock instead she continuously withdrew cash
over a period of years from increased valued portfolio using a margin
account. Today investor is an elder. All remaining equity is pure
profit. She wishes to give party $12,000 tax free gifts of remaining
stock. If she gifts $18,000 of stock still on 33% margin the net
value of the gift would be $12,000.
If investor gives away 100% of her portfolio there would be nothing
left to sell thus there would be no reportable (taxable profit). Does
this make sense and is it legal.
Example:
1995 investor buys $10,000 worth of stock.
1996 stock value $11,000
1997 investor borrows $2000 against stock - $9,000 remaining equity
1998 stock value $13,000 - $2000 margin - $11,000 remaining equity
1999 investor borrows $4000 - $7,000 remaining equity
2000 stock value $15,000 - $6000 margin - $9,000 remaining equity
2001 stock value $18,000 - $6000 margin - $12,000 remaining equity
2002 Investor gives $18,000 gift of stock with $6,000 margin - gift
value $12,000
We know the recipient of $12,000 has no taxes due. What about the
grantor who was relieved of the $6000 potential taxable profit..
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by joetaxpayer on March 27, 2008, 11:22 pm
Please log in for more thread options
researcher wrote:
> Investor never sold any stock instead she continuously withdrew cash
> over a period of years from increased valued portfolio using a margin
> account. Today investor is an elder. All remaining equity is pure
> profit. She wishes to give party $12,000 tax free gifts of remaining
> stock. If she gifts $18,000 of stock still on 33% margin the net
> value of the gift would be $12,000.
>
> If investor gives away 100% of her portfolio there would be nothing
> left to sell thus there would be no reportable (taxable profit). Does
> this make sense and is it legal.
>
>
> Example:
> 1995 investor buys $10,000 worth of stock.
> 1996 stock value $11,000
> 1997 investor borrows $2000 against stock - $9,000 remaining equity
> 1998 stock value $13,000 - $2000 margin - $11,000 remaining equity
> 1999 investor borrows $4000 - $7,000 remaining equity
> 2000 stock value $15,000 - $6000 margin - $9,000 remaining equity
> 2001 stock value $18,000 - $6000 margin - $12,000 remaining equity
> 2002 Investor gives $18,000 gift of stock with $6,000 margin - gift
> value $12,000
>
> We know the recipient of $12,000 has no taxes due. What about the
> grantor who was relieved of the $6000 potential taxable profit..
The basis is still $10,000. You keep using the expression 'remaining
equity'. Well, the total account value is $12K, I agree. But the owner
has $10K basis, and $8K unrealized gain.
I believe the recipient has a $12K gift value which still has the $8K
gain. She sells the stock for $18,000, pays back $6000 margin loan, and
pays tax on the $8,000 gain, long term.
TANSTAAFL - "There ain't no such thing as a free lunch"
Joe
www.blog.joetaxpayer.com
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by Stuart A. Bronstein on March 28, 2008, 1:02 am
Please log in for more thread options > researcher wrote:
>> Investor never sold any stock instead she continuously withdrew
>> cash over a period of years from increased valued portfolio using
>> a margin account. Today investor is an elder. All remaining
>> equity is pure profit. She wishes to give party $12,000 tax
>> free gifts of remaining stock. If she gifts $18,000 of stock
>> still on 33% margin the net value of the gift would be $12,000.
>>
>> If investor gives away 100% of her portfolio there would be
>> nothing left to sell thus there would be no reportable (taxable
>> profit). Does this make sense and is it legal.
>
> The basis is still $10,000. You keep using the expression
> 'remaining equity'. Well, the total account value is $12K, I
> agree. But the owner has $10K basis, and $8K unrealized gain.
>
> I believe the recipient has a $12K gift value which still has the
> $8K gain. She sells the stock for $18,000, pays back $6000 margin
> loan, and pays tax on the $8,000 gain, long term.
> TANSTAAFL - "There ain't no such thing as a free lunch"
Well, unless the investor keeps the stock until she dies and then
passes it on to the recipient. In that case the basis would be the
date of death value, and any tax on the gain would be wiped out.
On the other hand if the investor did that and her estate is large
enough to incur estate tax, the value of the stock would be taxed in
her estate at a higher rate than the income tax would have been.
Stu
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by Ernie Klein on March 28, 2008, 4:24 pm
Please log in for more thread options In article
> Investor never sold any stock instead she continuously withdrew cash
> over a period of years from increased valued portfolio using a margin
> account. Today investor is an elder. All remaining equity is pure
> profit. She wishes to give party $12,000 tax free gifts of remaining
> stock. If she gifts $18,000 of stock still on 33% margin the net
> value of the gift would be $12,000.
>
> If investor gives away 100% of her portfolio there would be nothing
> left to sell thus there would be no reportable (taxable profit). Does
> this make sense and is it legal.
>
>
> Example:
> 1995 investor buys $10,000 worth of stock.
> 1996 stock value $11,000
> 1997 investor borrows $2000 against stock - $9,000 remaining equity
> 1998 stock value $13,000 - $2000 margin - $11,000 remaining equity
> 1999 investor borrows $4000 - $7,000 remaining equity
> 2000 stock value $15,000 - $6000 margin - $9,000 remaining equity
> 2001 stock value $18,000 - $6000 margin - $12,000 remaining equity
> 2002 Investor gives $18,000 gift of stock with $6,000 margin - gift
> value $12,000
>
> We know the recipient of $12,000 has no taxes due.
Are you thinking of the $12,000 exclusion from gift tax? That is an
exclusion for the _giver_ of the gift, not the receiver, who is _never_
subject to the gift tax, no matter how large the gift.
The gift of stock is another matter. The givers original basis remains
with the gift of a stock ($10,000 in this case).
In your example above, assuming that a broker would even allow such a
transfer that included both stock that was pledged against a loan _and_
the loan itself to a 3rd party, without first selling off $6000 of stock
to satisfy the loan first, in which case the capital gains on that sale
would be taxable to the giver, but if such a transfer was allowed, then
the receiver of the 'gift' would have $18,000 worth of stock with a
basis of $10,000 and a $6000 loan to pay off.
[I quote 'gift' because I don't think that transferring the liability of
a loan could be considered to be a gift.]
>What about the
> grantor who was relieved of the $6000 potential taxable profit..
When the receiver of the 'gift' sells the stock he will have $6000 of
capital gains tax to pay (he received $18000 of stock with a basis of
$10,000).
Your example also has the unrealistic assumption that the margin loan
can go on for years without being paid - where is the money to pay the
interest on the loan coming from (margin loans are not interest free you
know - there would probably be about $1000 of interest due in the
example)?
So, it looks to me that overall, if you could 'give' (or transfer) both
the stock and loan liability to a third party (which I doubt), that at
the end of the day, the third party would have to pay capital gains tax
on $6000 of the $18,000 worth of stock AND then use the proceeds to pay
off the $7000 ($6000 + interest) loan - some 'gift'!
--
-Ernie-
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by joetaxpayer on March 28, 2008, 5:20 pm
Please log in for more thread options
Ernie Klein wrote:
> When the receiver of the 'gift' sells the stock he will have $6000 of
> capital gains tax to pay (he received $18000 of stock with a basis of
> $10,000).
Typo, right? Basis is $10K, value is $18K. $8K is LT cap gain.
(BTW - I've moved stock along with margin debt in just this way. Each
broker may have his own rules.)
Joe
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
| Similar Threads | Posted | | Income From Debt Relief | March 27, 2008, 11:13 pm |
| Relief for late S-Corp election | November 2, 2006, 12:52 am |
| Yearly or lifetime IRS limit on giving (gifting?) money to other persons? | October 4, 2007, 5:56 am |
| Large Monetary Gift - Gift Tax Question | May 22, 2007, 11:38 pm |
| Large Monetary Gift - Gift Tax Question | May 25, 2007, 1:41 pm |
| Reform a Credit Shelter Trust to make it a Grantor Trust? | November 19, 2007, 6:10 pm |
| Is the Credit Shelter Trust a Grantor Trust? | September 24, 2007, 8:48 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | September 28, 2007, 3:59 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 8, 2007, 6:43 pm |
| Re: Is the Credit Shelter Trust a Grantor Trust? | October 9, 2007, 8:28 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap