Gift Tax? Treatment?

I had been helping to support my (non-live-in) girlfriend. As we rolled into 2015, she was unemployed and I had limited free cash.

We created a joint account, with her SSN, into which I put $8000 of highly appreciated securities. We then sold them.

I late did the same thing with another $24,000 of securities. The total cost basis of the two lots was, let's say, $8000. This was all done within the same brokerage, so they have accurate cost basis records.

For reasons not worth going into, though, she has given me most of that money back.

I doubt that she will make much money this year. If I understand correctly, as long as her income is under about $47,000 (total income, so after personal exemption and standard deduction about $37K), she will be in a bracket where her capital gains rate is zero. So she will not have to actually pay any tax.

My net worth is such that I never expect to have an estate anywhere close to the exempt estate limit.

So my questions are:

1) Am I right on the capital gains issue? She'll get a tax form of some sort at the end of the year showing the realized capital gains, but in practice it won't increase her tax liability unless she makes at least about $23K this year. 2) Do I have to file a gift tax return? What is the significance of the fact that she gave most of the money back to me? Actually she gave almost all of "that" money back to me, while I gave her money from other sources, although I don't think the IRS cares about "this" dollar versus "that" dollar. There won't be any gift tax anyway, right? Just some form somewhere that means that when I die, they'll add $18K to my estate (the $32K I gave her less the $14K annual exemption per donee) before concluding my estate owes no tax.

It kind of occurs to me that there are a lot of unmarried couples where one makes a lot more than the other and is in effect "gifting" a lot to the other, but somehow I don't think the IRS is tracking if your significant other bought a Louis Vitton bag with your credit card and making you file it all at the end of the year.

Reply to
Hank Youngerman
Loading thread data ...

Actually, the "reasons" are probably critical to this question. If she were just a conduit for your sale of securities, then you should declare the sale as your own.

Technically, you should file a gift tax return, although there will be no tax.

The likelyhood of anyone uncovering either of these events, as you note, is slim to none, and "slim" is walking out the door.

Everything else, you say, is correct.

Reply to
NadCixelsyd

If the IRS investigates, three undisputed facts will stand out. 1) You had stock with a built-in Capital Gain. 2) The stock was sold.

3) You ended up with the proceeds. Given that you ended up with the money, the I expect the IRS to conclude the ex-girlfriend acted as your nominee when selling the stock and that you are the one who owes the Capital Gain tax.

Your ex-girlfriend can easily declare the sale as a 'nominee' transaction (Form 8949, column f, code N) and report zero Capital Gains. If she decides to take the full Capital Gain as income it may not increase her income tax but it may cause grief in other ways. The Capital Gain will show up as a $24K increase in Adjusted Gross Income. This may make her ineligible for some benefits that she may otherwise qualify for (e.g.: Medicaid, EITC,...?) or reduce/eliminate the amount of benefit from other programs (e.g. Obamacare Premium Tax Credit, others?). If the ex-GF gets benefits under any of these programs and eventually gets told she wasn't eligible and has to pay back the unwarranted benefit, what will she say? If she says "The stock was my boyfriend's. It was sold and he got the money. He told me if I declared the Capital Gains no one would have to pay taxes on the Capital Gain" you may have a problem if you didn't declare the Capital Gain on your tax return.

If I was in your position, I would go to the broker and tell them that you screwed up and put the wrong SSN (hers) on the joint account and that you would like to have the SSN changed to yours. If they are willing to change the SSN, your 1099 next year should show the sale and she is out of the loop. If they won't change the SSN, then she will need to declare the stock sale as a 'nominee' transaction with zero resulting Capital Gain when filing her 2015 tax return.

As to your original gift tax questions I see things differently than others. What I see are gifts that were mostly not completed or were returned plus a 'nominee' sale of stock. I do not see any >$14K, reportable gift. The alternative is that you gave her a >$14K gift and she then gave you a >$14K gift and you both need to file gift tax returns. That just seems silly.

Reply to
BignTall

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.