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Posted by Seth Breidbart on January 1, 2007, 12:09 am
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>> Consider a $300,000 house (parent's basis $200,000) sold as
>> a gift to the child for $150,000. The child wouldn't get a
>> basis of $350,000.
> The child's basis is the amount paid + the amount of the
> gift. Using your $300,000 house as an example, the child's
> basis would be $150,000 (cash paid) + $150,000 (the amount
> of the gift).
If true, that would be a great way to avoid some amount of
Capital Gains tax. You buy stock for $1,000, it goes up to
$10,000, and you sell/gift it for $100. The amount of the
gift is $9,900, so if the recipient's basis is as you claim,
they can sell it for $10,000 and there's no capital gains
tax. Meanwhile, you don't have any capital gains tax to
pay, taking a non-deductible $900 loss; nor is the gift
large enough to trigger a gift tax.
Therefore, it can't be the case.
The basis of the recipient is the _larger_ of the basis of
the donor or the amount paid, not their sum. That way, the
full increase is subject to Capital Gain Tax (perhaps partly
by each of the parties, as it would be if the stock were
sold/gifted for $5,000).
Seth
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Posted by Stuart A. Bronstein on January 2, 2007, 4:26 am
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>> The child's basis is the amount paid + the amount of the
>> gift. Using your $300,000 house as an example, the child's
>> basis would be $150,000 (cash paid) + $150,000 (the amount
>> of the gift).
> If true, that would be a great way to avoid some amount of
> Capital Gains tax. You buy stock for $1,000, it goes up to
> $10,000, and you sell/gift it for $100. The amount of the
> gift is $9,900, so if the recipient's basis is as you claim,
> they can sell it for $10,000 and there's no capital gains
> tax. Meanwhile, you don't have any capital gains tax to
> pay, taking a non-deductible $900 loss; nor is the gift
> large enough to trigger a gift tax.
>
> Therefore, it can't be the case.
It's not because you have it wrong.
If someone pays $100 for stock worth $10,000 he is paying
for one percent and the other 99 percent is a gift. His
basis is $999 (what the donor paid for the 99% that was a
gift) plus $100.
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 (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Seth Breidbart on January 3, 2007, 10:49 pm
Please log in for more thread options >> If true, that would be a great way to avoid some amount of
>> Capital Gains tax. You buy stock for $1,000, it goes up to
>> $10,000, and you sell/gift it for $100. The amount of the
>> gift is $9,900, so if the recipient's basis is as you claim,
>> they can sell it for $10,000 and there's no capital gains
>> tax. Meanwhile, you don't have any capital gains tax to
>> pay, taking a non-deductible $900 loss; nor is the gift
>> large enough to trigger a gift tax.
>>
>> Therefore, it can't be the case.
> It's not because you have it wrong.
>
> If someone pays $100 for stock worth $10,000 he is paying
> for one percent and the other 99 percent is a gift. His
> basis is $999 (what the donor paid for the 99% that was a
> gift) plus $100.
A buys stock for $5,000. It goes up to $10,000. A sells it
to B as a gift for $5,000. A has no Capital Gains tax. B
paid $5,000 and received a $5,000 gift. Your calculation
says that B's basis is $7,500 (A's cost of the 50% that's a
gift, plus B's payment). B sells the stock; total Capital
Gains is only $2,500.
That still avoids tax; Capital Gains should be on $5,000.
Seth
<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Stuart A. Bronstein on January 4, 2007, 8:35 pm
Please log in for more thread options >> If someone pays $100 for stock worth $10,000 he is paying
>> for one percent and the other 99 percent is a gift. His
>> basis is $999 (what the donor paid for the 99% that was a
>> gift) plus $100.
> A buys stock for $5,000. It goes up to $10,000. A sells it
> to B as a gift for $5,000. A has no Capital Gains tax. B
> paid $5,000 and received a $5,000 gift. Your calculation
> says that B's basis is $7,500 (A's cost of the 50% that's a
> gift, plus B's payment). B sells the stock; total Capital
> Gains is only $2,500.
No, A has a capital gain of $2500. It's like selling half
for market value and giving the rest as a gift.
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 (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Bill Brown on January 2, 2007, 4:07 am
Please log in for more thread options >>> Consider a $300,000 house (parent's basis $200,000) sold as
>>> a gift to the child for $150,000. The child wouldn't get a
>>> basis of $350,000.
>> The child's basis is the amount paid + the amount of the
>> gift. Using your $300,000 house as an example, the child's
>> basis would be $150,000 (cash paid) + $150,000 (the amount
>> of the gift).
> If true, that would be a great way to avoid some amount of
> Capital Gains tax. You buy stock for $1,000, it goes up to
> $10,000, and you sell/gift it for $100. The amount of the
> gift is $9,900, so if the recipient's basis is as you claim,
> they can sell it for $10,000 and there's no capital gains
> tax. Meanwhile, you don't have any capital gains tax to
> pay, taking a non-deductible $900 loss; nor is the gift
> large enough to trigger a gift tax.
>
> Therefore, it can't be the case.
>
> The basis of the recipient is the _larger_ of the basis of
> the donor or the amount paid, not their sum. That way, the
> full increase is subject to Capital Gain Tax (perhaps partly
> by each of the parties, as it would be if the stock were
> sold/gifted for $5,000).
I misspoke. The child's basis is the amount paid plus the
parent's basis in the part gifted. Using your numbers, the
child's basis would be $150,000 (for the half interest
purchased) + $100,000 (the donor's basis in the half
interest gifted) = $250,000.
The parent would have a $50,000 gain to report on the sale
and a $150,000 gift return item to report.
<< ======================================================= >>
<< 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 (2006) - All rights reserved. >>
<< ======================================================= >>
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