Transferring stock from two to one owner

Transferring ownership is a practical, not a tax issue. Normally you endorse the certificates over to her on the back. She can then have hte corporation issue new certificates to her in her own name.

But there are only two ways she can get a stepped-up basis (if that's what you are talking about). One is for her to pay you for your share. The other is to inherit your share when you die. It doesn't sound like either of these is what is going on.

___ Stu

Stuart

These are shares of a very comonly-held common stock. I understand about the signing of the certificate, and I am sure I can make a few phone calls and find out where to send the shares by registered mail. But, how do we figure the tax situation? If we own the shares jointly, and I sign/turn them over to my daughter, do I pretend that I own half the shares and pay her the market value of those 1/2 total shares and then that is her new cost basis for those 1/2 total shares and she must use the original cost basis for the other 1/2 shares? I usually can figure these things out, but this is a whole new situation for me.

Bob - how is it you both own the shares? Did you go half on the purchase? If you actually each own half, this sounds like a gift, you are gifting her the half she doesn't own. You can gift anyone $13,000 per year with no gift tax or even need to file any form. As Stu suggested, no step up with this process. If you self her your half at market value, she gets new basis, and you get taxed on your cap gain.

On 4/28/2012 10:37 PM, hr(bob) snipped-for-privacy@att.net wrote: ...

If you transfer your ownership of your half _to_ her, _she_ would be paying _you_ and you would have capital gain to report and she gets the new basis on that number of shares as Stu says.

If you gift your share, she gets the shares outright but no step-up in basis. There's the $13k annual rule for gifting, of course, depending on the value and number of shares.

When I said I would pay her, I meant to say she would pay me.

If we do that, then she would have half the shares at a stepped-up basis, and half at the original price. It happens these are AT&T (T) shares that have a long and labored purchase thru the employee purchase plan dating back to the 1960's. I think that I am probably the only person who could figure out the honest cost basis, and I don't want to saddle my daughter with a big problem. I may just take the share certificates to Scottrade, have them sell all and buy them back only in my daughters name. She gets a new cost basis, and I have enough Lucent employee losses to take care of a good part of the capital gain, and I'll take my lumps on the entire sale price since I originally paid for them and just had my daughters name on the account, she was a baby at that point in time. Am I missing something???

That should work. Even if the wash sale rules would nominally apply because of related party rules, you'd be selling at a gain, so there's no wash sale. So the realized capital gain will definitely stay with you and, as you say, your daughter would get the new basis.

Some other thoughts, though...

If you give to charity, give an amount of the ATT stock equal to what you usually give instead of giving cash, gift the cash to your daugher, and have her buy the stock. Then you get a deduction for the full value of the stock but pay no tax on the gain.

This can be simplfied by using a donor-advised fund of the kind offered by Fidelity, Vanguard, etc. as an intermediary. Then the charity doesn't have to deal with the stock. You donate the stock to the donor-advised fund and the fund cuts the check to the charity. (Donor-advised funds are GREAT for using appreciated stock to fund all your charitable giving, since you can make grants from the fund to a charity of as little as $50. So you if make a bunch of smaller donations you can still do that, only now you get to fund it with appreciated stock.)

I thought the charitable gift procedure you mention was only for 2011 tax year and had not been renewed for 2012.

Nope. Charitable contributions of appreciated assets have been treated this way for decades.

Maybe you're thinking of qualified charitable distributions from IRAs?

Yes, you're right. For better or worse, this stock predates IRAs by quite a few years.

Another advantage of gifting stock is that you don't have to worry about calculating the cost basis.

Be aware of the 30% limitation for stock donations. That is, you can only deduct on Schedule A the value of stock less than or equal to 30% of your AGI. The remainder is carried over for 5 years. There is also a 20% limitation, but it probably won't apply because most charitable organizations I've seen are

If you gift stock, then the new basis is the lower of cost or FMV. So if you gift stock at a loss, the new basis if FMV. Since the original post said these shares were held since 1960, but there was a purchase plan (maybe to use dividends to buy more stock). So most batches of stock will be at a gain. But some (purchased recently) may be in a loss -- so the cost basis of these stocks will be FMV.

And if the original person is married, they can gift 26k; and if the daughter is also married they can gift 52k as long as the gift is made out to both the daughter and the spouse.

I've seen many people quote this advice but it is not correct.

Example: At the time of gift, the stock had a basis of $20 and FMV on date of gift is $15.

Later the stock is sold for $30. What is gain or loss?

Using the quote here, new basis is 15, so gain is (30-15 = 15).

But that's not correct.

When, as in this example, FMV at time of gift is less than basis, the gifted stock acquires a dual basis, in which the tax basis is determined at time of sale.

At time of sale use original basis to determine gain and use FMV at time of gift to determine loss.

Or put another way:

If FMV of asset is less than basis on the day of gift (i.e. was held at an unrealized loss), then the recipient's basis is:

The idea of the law is to make losses disappear when the asset is gifted. So not only can you not give away a loss, but the loss is permanently lost when the asset is gifted.

calculating the cost basis.

For sake of accuracy - you meant "donating to charity" not "gifting."

You are correct. Thank you.

I thought it was well known that you were never allowed to sell one of the "baby Bells"; you had to keep them until you died.

I don't have a cite, but I think it was in the "Be Kind to Your Tax Preparer" act.

Don EA in Upstate NY