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reporting capital gains

I borrowed money against a portfolio of stocks (with the understanding

- any increased value will be mine) by transferring the shares to the lender. After 3 years the portfolio value has risen. I now wish to sell the shares and repay the loan. The lender will be the seller but I will receive all funds in excess of the original loan amount. How should this be reported to the IRS. Can the lender show a wash between his cost and sales and I report a capital gain for which there will be no broker statements. We have a loan document confirming that any increased value, if any, will go to the borrower.

Reply to
researcher
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"researcher" wrote

You report the amount it sold for less your cost basis for any gain or loss computation on your part. How they account for it isn't your problem.

The IRS would overlook the cash flow of this transaction, so you have to too.

Reply to
paulthomascpa

BTW, are you paying interest to the lender? If yes, it is deductible as investment interest on Schedule A (subject of course to the limitations of investment interest). The lender must report the interest on their Schedule B. Any capital gains from liquidating the stocks is yours, and you have to pay tax on it.

Reply to
removeps-groups

It sounds like a nominee situation to me. See page 66 of Pub 550 for how to report.

Phil Marti VITA/TCE Volunteer

Reply to
Phil Marti

IANAL, so I have a problem understanding this. If you transferred your property to someone else and received cash, how is that a loan and not a sale?

Now, if you had granted a lien against your property to secure the loan, that I could understand.

Are they your shares to sell?

What if the shares had lost value, what does your agreement say about that?

-Mark Bole

Reply to
Mark Bole

You should also review the replies you received a little over a year ago when you posted essentially the same question to this newsgroup.

-------- Original Message -------- Subject: stock transfer and re-transfer Date: Thu, 12 Mar 2009 21:28:20 EDT From: researcher

Two years ago I transfered shares of stock to a friend in exchange for a personal loan. At the time I had a substantial paper loss on these shares but did declare it since my friend agreed to return them when I repaid the loan. I repaid the loan and now the brokerage house states they cannot return the shares in my name. The stock has risen and I want the shares sold. If my friend sells them he has a taxable event. How might I best work this situation out.

Reply to
Mark Bole

I'd guess the stock is held as security for the loan. It's not an unusual kind of situation. Think of pawn shops - the security for the loan is actuall handed over and the lender can sell it if the loan isn't paid off on time.

Reply to
Stuart A. Bronstein

How come it is a nominee situation? The contract says profits are for the borrower to keep. Suppose 10k was lent. The stocks is now

12.5k. If the lender is paid back the loan with 10k in stock, then they're kind of screwed because they have to pay tax on 10k-8k=2k, whereas the borrower only pays tax in 0.5k.
Reply to
removeps-groups

I have no idea where you got any of that.

If the lender takes title only as security, legally it is trustee of a grantor trust on behalf of the borrower. The lender only pays tax on interest earned on the loan. The borrower is taxed, as a long term capital gain, on the increase in value of the stock.

Reply to
Stuart A. Bronstein

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