Insider Jeff Fleming

Gifting Stock

Stocks are often the gift that keeps on giving. Jeff Fleming discusses how you can cut the tax bite on a stock gift. Also, learn your options when cashing in a savings bond.

Dear Jeff:
I have stock in a couple of drug firms that have done well over the years. I would like to give some of this stock to my three grandkids. Could you comment on this, including the tax implications? Thanks.

Jeff Says:
Taxpayers are allowed to give as much as $10,000 per year to as many individuals as they like without incurring a gift tax. So, for example, you could give $10,000 to ten different people for a total gift during that one year of $100,000 without incurring a gift tax. The lucky recipient of the gift does not have to pay income taxes upon receipt of the gift because the Internal Revenue Code excludes gifts from income.

The potential pitfall to gifting stock that has significantly appreciated over the years, such as your drug stocks, is that the gift recipient will also receive your cost basis in the stock. Thus, when he or she sells it, the capital gains tax will be owed. Alternatively, if you bequeath the stock to your grandchildren in your will, then they will receive a stepped-up basis in the property and will not recognize any capital gains upon the sale.

I realize, however, that you would probably prefer to give your grandchildren the stock now when they need it, and while you can experience the joy of giving. If that is the case, then make the gift now. After all, the maximum long-term capital gains tax rate is only 20 percent.

Read a previous column on Taxes on Gifts.

Cashing in a Savings Bond