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Paying For College

Assume the following:

Taxpayer married, AGI around $100K, taxpayer and wife in their 60's (in case it matters).

Child over 18, attending college, probably still qualifying as dependent, relatively little income.

To pay for child's college, taxpayer transfers (say) $25K a year in stock with a cost basis of $10K.

Can the child sell the stock and have the capital gains taxed at their own tax rate, which in this case would be 0% Federal?

Again, just in case it matters, the stock is probably in the father's name, who is about 8 years older than the mother. The family is not so comfortable that they can expect to hold the appreciated shares until the father's death. Non community property state, but the stock was probably purchased before marriage.

Reply to
Roger Fitzsimmons
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For Gift tax purposes, the gift is valued at FMV. For capital gains (your example), the cost basis transfers to the donee.

In your scenario assuming the stock is separate property you can choose to make the gift yourself and file Form 709 to use some of your lifetime exclusion to cover the amount in excess of the annual limit. Or... you can elect to split the gift with your spouse's consent and avoid using up any of the lifetime exemption. This also requires the filing of the 709.

Upon the sale of the stock by the dependent, the dependent would be subject to the new Kiddie Tax rules that use Trust tax rates rather than the parent's tax rates.

See my reply to the post called Kiddie Tax and the New Tax Law for an explanation.

Reply to
Alan

Thank you. It looks to me like the child could only sell the stock and take advantage of his own lower capital gains rate if he is either at least 24 on December 31, or out of school, or earned at least half his support.

The parents are in no danger of having to pay estate tax.

So this would be a good way to pay off student loans but not to pay tuition while the child is still in school?

Reply to
Roger Fitzsimmons

Roger Fitzsimmons wrote in news: snipped-for-privacy@googlegroups.com:

One thought I had was to give the securities to your child as you plan, but don't have him sell them. Instead if he can use them as collateral for a loan, he can wait to sell them until he ages out of the kiddie tax. In the mean time he can cash in enough to pay interest on the loan and still not have a problem with the kiddie tax.

Stu

Reply to
Stuart O. Bronstein

As a reminder to those reading this.... under the trust tax rate system, the 3.8% tax on net investment income kicks in on amounts over $12,699. So the combined tax on the excess would be 23.8%.

Reply to
Alan

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