Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: I'm going to give my son a gift of less than $10,000 in stock for a wedding present in October. What is the cost basis for that gift? Second, if they then immediately sell it, say five days later, what would be their tax consequences in the '98 tax year?
A: Generally, the cost basis would be what you paid for the stock. For example, if you bought the stock for $5,000 and on the date of the gift, the stock has a fair-market value of $9,000, your cost basis would be $5,000. The answer to your second question depends on two things. First, was the stock sold for a gain or a loss compared to what you paid for it? Second, if the stock was sold at a loss, was the fair-market value higher or lower on the date of the gift than when you bought it? If the stock was sold for a gain, it doesn't matter what the fair-market value was at the date of the gift. Your son would recognize a gain based on your cost basis. Assume in the above example the stock was sold for $9,500. In this case, your son would recognize a gain of $4,500 ($9,500 minus $5,000). If the stock is sold for a loss, and the fair-market value (value at the time of the gift) was higher than what you paid for it, your son would recognize a loss based on your cost basis. Again, assume in the above example that the stock was sold at $4,000; your son would recognize a loss of $1,000 ($4,000 minus $5,000). The basis for the loss is the cost basis or fair-market value of the property at the time of the gift, whichever is lower. In some cases, neither a gain nor loss is recognized because the selling price is less than the basis for gain and more than the basis for loss.
Frank Brodnax CPA, Ellin & Tucker The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
Pub Date: 4/01/98