Your Money Matters
by Don Pressman
A reader asked the basis, to a child of a gifted stock, a
question that many parents and grandparents have at this time of
year. As easy a question as it appears, the answer is not
straightforward. Some examples will help to clarify this; if the
parent paid $10,000.00 for the stock and the stock is now worth
$20,000. 00 the child’s basis is $10,000.00 the cost of the stock to
the parent. If the parent paid $10,000.00 and the stock is now worth
$5,000.00 the basis of the stock is $5,000.00 the current value of
the stock.
Now, let’s shift gears and determine the basis of a stock when it is
inherited. The basis of an inherited stock is the value of that
stock on the date of death, of the donor. I might add there are some
minor variations to the above, but the principal is relevant and of
course, a competent tax p
rofessional
should be consulted before taking any action. As one can see, the
tax burden on the child when the stock is sold can vary by many
thousands of dollars, so as shown here; proper planning can result
in substantial tax savings.
Some Tax Saving Thoughts: If the (gift or) has a capital loss for
the year or a carryover capital loss, it could be advisable to sell
the stock and apply the loss against the $10,000.00 gain and have no
tax liability. The parent (gift or) can then give the $20,000.00 to
the child. The child can buy $20,000.00 worth of stock and have a
basis of $20,000.00 for that stock.
But, as the tax law has many ways to get you, any gift in excess of
$13,000 per year, per person requires a tax form to be completed but
does not have a tax liability imposed unless the parent has gifted
in excess of $1,000,000 in his lifetime.
Another strategy, of course would be to gift $10,000.00 before
year-end and another $10,000.00 on January 1, 2011.
A discussion of this nature would not be complete without mentioning
that the Obama administration and Congress have done nothing to
prevent the estate tax to reverting to a $1,000,000 estate with a
55% tax rate from its present $3,500,000 .00 estate with a 45% tax
rate.— quite a tax increase for those people with an estate over
$1,000,000.
As the year is coming to a close, I would like to thank you for your
letters, emails, and calls. I am available to answer your questions,
as always, and would be happy to review your portfolio(s) and assist
with your year-end planning.
This article is written by Don Pressman and is not necessarily the
view of the publisher or anyone else. Mr. Pressman is a graduate of
the Boston University School of Management and Harvard Business
School. He can be reached at 561-998-4758 or
hbs61@comcast.net.