som1178 wrote:

- quote -

When you gifted the stock to your daughter, your cost basis
($1000) went with it.

- quote -

No. First, this is HER income, not yours. Prepare a separate
return for her, the sale cannot be reported on your return.
Second, the standard deduction for a minor dependent is
$800, so no tax is due on that amount. The remaining $200 is
taxed at 10%, the lowest tax bracket.

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"som1178" <rakhi1178[at]yahoo.com> writes:

- quote -

The rule is very simple. When a gift is made of assets
held at a paper gain, the giftee takes on the giftor's
basis and holding period. So your daughter has a basis
of $10 per share and an acquisition date of 2/1/05.

If the assets were held at a paper *loss* it's a bit
more complicated. The asset takes on a dual basis of
your basis and the FMV at the time of gift. If it
is subsequently sold for more than your basis, the gain
is computed based on your basis. If it is sold for less
than FMV at time of gift, the loss is computed based on
FMV at a time of gift. If it is sold for between those
numbers, the basis is the sales proceeds.

- quote -

First, because there was a stock sale, you will have to file
a return for your daughter. You can't use the "claim child's
investment income on your return" shortcut.

Second, the magic number is up to $800, and the kiddie tax
only applies when there's more than $1600 of investment
income. So the $200 of gain beyond the $800 exemption
will be taxed at her 5%, not your 15%.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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som1178 wrote:

- quote -

I assume this is the only transaction for your child.

Her cost is your cost, $1000 (the value at gift time is only
an issue if you pushed the gift limit of $11,000 in 05)

There is an $800 standard deduction (up from the $750 you
thought.

$200 is taxed as a long term gain, so 5% rate or $10 tax
owed, and filed under her name/ return.

See Pub 929 from IRS.gov for details.

JOE

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This is an example for something I need advice. On 2/1/2005,
I purchased 100 shares a stock in my non-retirement account
for $10 per share. On 2/12/2006, the stock had appreciated
to $15 per share. I transferred all shares to a custodian
UTMA account for my 10-year old daughter as a gift. Let's
say on 3/12/2007, the stock appreciates to $20 per share,
and I decide to sell it. What is the capital gains for this
transaction? Is it $1000 (from my cost basis), or $500 (cost
basis when the gift was made)?

Follow up question: assuming the capital gains is $1000, and
this is the only income for my daughter for that year, I
would pay no taxes for the first $750 of the income, and pay
15% tax on the remaining $250. Am I right?

Any advice will be appreciated. Thanks.

Som

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >