Stock cost basis and gift tax exclusion ($12k a year) question

snipped-for-privacy@gmail.com wrote: : When grandma gifts the stock, does she need to put something in Schedule D, because it's the disposition of an asset? What should she put as the sales price? If she puts in the FMV, then that makes it look like she owes capital gains tax. But she doesn't owe capital gains tax. It's the grandchild that will owe. So does she just set the "sales price" to her basis, so it comes out as no captal gain for her? Or does she put $0, because she did not re eive any compensation. Or does she indicate it as a gift in some way on Schecule D, or leave it off Schedule D altogether?

When I did this dquite a few years ago(so my information may be dated) I was instructed to value the gift at the fair market value, but ot give the basis of the gift to the recipient(or parent if child is too young) so that when the stock is sold in the future my basis woudl b the basis the recipient will use. No capital gains tax is due until the stock is sold by the recipient.

Wendy Baker

I don't understand Wendy's answer. The question was whether Grandma (Donor) needed to put something on her Schedule D. Bob Sandler's answer is correct. Grandma makes no entry on a Schedule D for the gift. Grandma should provide the donee with her cost basis. If the FMV on the date of the gift is less than the cost basis, then she should also provide the FMV. If the FMV is less on the date of gift, the donee would compute a gain on the sale by using the basis. A loss would be computed using the FMV. If the FMV is equal to or higher than the basis, then any gain or loss in the future is figured on the basis.

If the FMV on the date of gift plus any other gifts made to that same donee in the same year exceeds the annual gift tax exclusion, then Grandma has to file a Gift tax return.