Tax questions

February 10, 1999

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

If you give stock to someone in your family, is the cost basis of the stock the price at the time of the gift or the original purchase price?

It depends, and, given our complex tax code, that's probably the answer you would expect. Generally speaking, the gift retains the cost basis of the original purchase price. However, when the recipient goes to sell the stock, and it is being sold at a loss, the loss calculation can use only the lower of the original purchase price or the value of the stock at the time of the gift. Put on your thinking cap and you can envision how it is possible that a sale by a recipient of a gift like this may result in no taxable gain or loss.

My wife's will left one-third of a large IRA in a trust for my grandchildren. The IRA was paid to me directly. I had significant legal expenses in setting up the trust. Can I deduct these expenses from my IRA income for tax purposes?

Since the IRA was paid to you, we are assuming that you were named as the IRA's beneficiary. In that case, the cost of creating the trust would be allowed as a cost in the administration of the estate. You, however, cannot personally deduct the cost.

Barry S. Miller, CPA,

Handwerger, Cardegna

Funkhouser & Lurman P.A.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a Touch-Tone phone, punch in the four-digit code 6225 after the greeting. You can also submit questions by e-mail through The Sun's Web site: www.sunspot.net. Click on Business.

Selected questions will be answered in the Business section. No questions will be answered personally.

Pub Date: 2/10/99

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