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Gift stock to Mom

Chris Farrell Nov 19, 2009

Question: What are the tax implications of giving a gift of appreciated stock to parents? I have some stock which has appreciated over the last couple of years and would like to gift some of it to my mother. Does her cost basis become zero when she sells it? Would it be better for me to sell it, pay the capital gains taxes, and have her rebuy it with the proceeds? Jim, Cincinnati, OH

Answer: When it comes to taxes there are always two phrases I have to write. The first is, “it all depends.” The second is “check with a tax professional.” I’m certainly not a CPA.

That said, gifting appreciated stock to your parents could be a savvy move depending on several moving parts.

Here’s an example with several assumptions: You say you bought the stock several years ago and it appreciated in value. Let’s assume you bought the stock for $10 a share and when you gift it the value is $20 a share. The total value of your gift is below the current $13,000 gift tax exclusion. Your Mom is in a lower tax bracket than you’re in.

Okay, you gift her stock at $20 a share. She turns the stock into cash by selling it immediately at $20. Now, her cost basis for figuring out her tax liability is $10 a share–the price you bought it at. However, she also gets to take advantage of the low capital gains tax rate since you owned the stock for more than a year. Better yet, if she’s in a low tax bracket her capital gains tax rate could be below yours. For instance, the long-term capital gains tax rate for folks in the 10% and 15% tax brackets is zero. That’s right, 0%. The long-term capital gains rate for everyone else is 15%. (These rates only hold through 2010. They change in 2011.)

As you can see the devil is in the details. Change one assumption and the tax implications shift. Still, the idea is worth pursuing. It could be a very cost effective way to get money to your Mom. And that’s always a nice thing to do.

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