Use Appreciated Stock to Fund Obligations

A taxpayer may consider gifting stock that has appreciated in value to his or her children (over age 23) to help pay for education expenses or to purchase a home, or to parents to help pay for elderly care. By doing this, the tax liability for the gain from selling the stock is shifted to the child or parent, who with proper planning, may pay a lower tax on the profits than the taxpayer. In 2008, each taxpayer can gift up to $12,000 (amount may be different for future years) to any other individual without gift tax liability. Let’s say that you own stock worth $10,000 that was originally purchased for $2,000 some years ago. If you sell that stock and use the $10,000 for a child’s education or parent’s eldercare, the $8,000 profit would have to be reported. If you are in the 25% or higher tax bracket, your capital gains tax would be $1,200. On the other hand, if you gifted the stock to someone and then that individual sold the stock, the individual would report the $8,000 gain on their return. Assuming that the individual is in the 15% tax bracket, their tax could be as low as zero if the stock is sold before 2011. 

This strategy cannot be used for children under the age of 19 or by children who are full-time students and under the age of 24.

Everyone's situation is different and what works for one may not work for another. Please call this office for information pertaining to your particular circumstances.

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