30 Years Of Legal Experience

Providing effective counsel in the areas of wills, trusts, estate planning, probate of estates, retirement planning, elder law, and business planning for clients in North Reading and surrounding towns in Essex, Middlesex, and Suffolk counties.

Gifting And Capital Gains

Unlike inherited assets, gifted assets do not receive a stepped-up cost basis. Before making a decision to make gifts to your children or other beneficiaries, you should consider the capital gains tax consequences first. When you gift something to someone, you are also gifting your cost basis to that person. A gift of cash does not create capital gains tax consequences. But a gift of stock or real estate does.

Capital gains and gift taxes are easily misunderstood and undeniably complex. Make every dollar count and invest where it matters most — in a lawyer who has your best interests at heart. Call Attorney Schreiber at 978-664-2552 or send a message to schedule a consult.

Example Of Gifting And Capital Gains

You bought 1,500 shares of Apple stock many years ago, for $25/share. This year, you decide to gift 500 shares to each of your three sons. You are also gifting them your cost basis of $25/share. If one of them sells his 500 shares of stock for $535/share, his capital gain per share will be the sales price ($535/share) minus the cost basis ($25/share), or $510/share. The sales proceeds will be $267,500. The capital gain will be $255,000 (500 shares x $510/share). If he sells the stock in the year after you gift it to him, the $255,000 gain will be taxed as ordinary income. This amount will put your son into the highest income tax bracket of 39.6 percent. He will also have to pay the new 3.8 percent Medicare tax on his investment income. If he waits a year to sell his stock, the gain will be taxed at the long-term capital gains tax rate, which depends on his income tax bracket — it ranges from 15 to 25 percent.

If you leave the Apple stock to your children under the terms of your Will or Trust, your children’s cost basis of the stock will be “stepped up” to the date of death value, as reported on the probate inventory or estate tax return. This rule applies even if an estate tax return is not filed for your estate. If you want to make a gift, cash or an asset with a high cost basis is the better choice. Tax laws are interrelated. You must look at all taxes that affect your estate plan and gifting to determine what plan is best for you and your family.

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