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The Gift of Stock

BY IN Recent News On 17-11-2015

It’s the holiday season and we all like to get gifts. Sure, but what if the gift-wrapped box with your name on it contains a gift of stock, or other non-cash property? First, you say “Thank you Uncle George,” then you try to get up the nerve to say, “Uncle George, what did you pay for this stock?”

An important, but touchy, question, as you will have to calculate your gain or loss when you go to sell this stock. In order to do this properly you will need to know your “basis.” Generally for things you buy yourself, the basis is simply your cost. For property received as a gift, however, special basis rules apply.

General rule—carryover basis. The general rule is that you receive the same basis in the property that Uncle George had in it. Hence the reason to impolitely shout out, “Hey Unc, what did this set you back?” before he drifts off to sleep. This is sometimes called a “carryover” basis, because the donor’s basis carries over to you as done along with the gift. Most people get this wrong and mistakenly believe their basis is the value of the gift when they receive it.

Loss property. If good ole U Geo tries to unload some stock that has gone down in value since he bought it, his basis (cost) will be higher than the value of the property. This is what you call loss property.

Stay with me here, before you get caught up in the open bar and holiday snacks. In this case, you must keep track of two figures for basis purposes. If you sell your stock at a gain, you use as your basis the number you dragged out of Uncle George above, what he paid for it. But if you let it go at a loss just to get the cold hard cash, your basis is limited to that (lower) value of the property at the time of the gift.

And just to top it off, if you, the donee of loss property, sell it for an amount somewhere in between the property’s date of gift basis and (lower) value, there will be no gain or loss on the sale. Who knew?!

Chances are if Uncle George had paid tax on that gift to you, we call that Gift Tax, right? – you would have received a letter and a statement reporting your basis, in that gift-wrapped box, as part of your present. So there’s no need for all the insulting questions.

So to recap, any way that you have to get that basis info, just get it before Uncle George slips away into the frosty night. He may be headed home to shred all of that paperwork that he doesn’t need anymore, for something he doesn’t own anymore. It might be gone forever. The IRS, however, won’t listen to the tale of Uncle George and how he just disappeared one day after bingo. If you can’t establish basis, the IRS can impose a zero basis, in which case you will have to report the entire sale price as gain. Whoa, good to know!!

So someday soon, if you find yourself on the gettin’ end of some shares of stock, or other property, and would like us help you put some numbers to your situation, feel free to give us a call.


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