Use Appreciated Stock to Fund Obligations

• Posted on August 17, 2008
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Long Island CPA Firm Offering Tax and Financial Advice

You might want to consider gifting stock that has appreciated in value to your children (over age 23) to help pay for their education or to purchase a home, or to parents to help pay for their eldercare. By doing this, you shift the tax liability for the gain from selling the stock to the child or parent, who with proper planning, may pay a lower tax on the profits than you would. In 2011, each taxpayer can gift up to $13,000 (amount may be different for future years) to any other individual without gift tax liability. As example, you own stock worth $10,000 that you 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, you would have to report the $8,000 profit. 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 the individual is in the 15% tax bracket, their tax could be as low as zero if the stock is sold before 2013. 

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

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.