Christian Posted February 13, 2015 Report Share Posted February 13, 2015 (edited) A client wants to give his aged mother some stock he has owned for some time. I advised him he can give her some $14,000 with no tax consequences to him. She will sell the stock to pay off some debts. I am assuming her cost basis in the stock will be what he paid for it. She would then be liable for any capital gains taxes if any. Is this correct ? Edited February 13, 2015 by Christian Quote Link to comment Share on other sites More sharing options...
Elrod Posted February 13, 2015 Report Share Posted February 13, 2015 Correct, Christian. 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 13, 2015 Report Share Posted February 13, 2015 If mom needed more and he wanted to give more, he can actually do that and still not pay gift taxes. He would have to file the gift tax return, use the $14K of annual exclusion, and then the portion that exceeds $14K uses up some of the unified credit allowed over one's lifetime. The gift tax return will calculate the tax on the excess over $14K and will allow a credit of the same amount to offset, so there still wouldn't be any gift tax due. Everyone gets hung up about the $14K limit, but that is the point under which you don't have to file a gift tax return, not the point at which you actually will pay tax. Of course, that is assuming that this wealthy individual hasn't already made such gifts in earlier years that the unified credit is mostly used up and won't cover the gift tax in the current year. If anyone reading this doesn't understand what the unified credit is or what it represents, it is the amount of gift/estate taxes that will never be paid because estates are currently allowed assets of up to $5.43 million (for 2015) and not be taxed. In other words, that is the total amount of wealth the tax law currently allows one person to transfer to others without ever paying tax. Those transfers can be made either by gifts during one's lifetime or after death from his estate, that is why gift and estate tax works together, and why it is called the "unified" credit. The gift tax return asks for all prior gifts made during one's lifetime that exceed the annual limit and accumulates them so that the IRS knows how much wealth has been transferred during one's lifetime via gifts, because that amount ultimately reduces the $5.43 million amount. As a very simple example, if an individual makes gifts exceeding the annual limit during his lifetime that total $2 million, then his estate can only have up to $3.43 million of assets and still be considered small enough to not be taxable. Disclaimer: That is for federal purposes only, and anyone reading this should consider any implications at the state level also to determine if gifts in excess of the annual limit will create any taxes currently payable under existing state laws. 4 Quote Link to comment Share on other sites More sharing options...
Max W Posted February 13, 2015 Report Share Posted February 13, 2015 Sounds easy, Right? Consider this - unless the client has the actual stock certificates that he can transfer to mom, the gifted stock is going to show up on his 1099B from the broker at the end of the year as a taxable transaction to the client. 1 Quote Link to comment Share on other sites More sharing options...
michaelmars Posted February 14, 2015 Report Share Posted February 14, 2015 Sounds easy, Right? Consider this - unless the client has the actual stock certificates that he can transfer to mom, the gifted stock is going to show up on his 1099B from the broker at the end of the year as a taxable transaction to the client. no its not, not if he does a direct transfer. we do this everyday ie changing assets to a trust, even changing brokers, it will be a transfer out of shares, not a sale and not on a 1099b Quote Link to comment Share on other sites More sharing options...
JohnH Posted February 14, 2015 Report Share Posted February 14, 2015 Judy: That's a great explanation. Mind if I print it off and give to a couple of clients who just can't seem to understand me? 1 Quote Link to comment Share on other sites More sharing options...
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