Tax Implications of Gifted Stock

No kind deed goes unpunished by the Internal Revenue Service: If you make a gift of stock to another person, you might owe gift taxes. Whether you're donating stock to charity or giving it to a child, your generosity could trigger tax liability. If you're on the receiving end, you don't have any immediate taxes due. However, you need to know what information to record so you can figure your tax liabilities for if and when you sell.

Gift Taxes

You can give gifts tax-free up to the annual exemption, which was $13,000 as of 2012. Any excess counts as a taxable gift. However, you could get a pass on the taxes due to the lifetime gift tax credit. As of 2012, that meant you could give up to $5,120,000 in taxable gifts before you exhaust your credit. As long as you're under that generous amount, you won’t owe taxes on the gift. You will, however, need to file a gift tax return.

Gift to Charity

If you gift the stock to a qualified charity, you can usually deduct the fair market value of the stock. Religious organizations, educational institutions and non-profit hospitals all count as qualified charities. However, if had the stock for less than one year, you can only deduct what you paid for it or what the stock is worth, whichever is smallest. For example, if you buy the stock for $4,000, that's what you have to deduct even if the stock was selling for $6,000 when you made the donation. However, if the stock fell to $3,000 by then, that's your maximum deduction.

No Tax on Recipient

You don’t have to worry about being taxed on a gift you get from someone else. However, you should ask the donor how much he paid for it and record the value of the stock at the time you received it. When you sell the stock, figure your gain based on the original price when it was bought or the fair market value when you become its owner.

Sale by Recipient

If you sell the stock for more than what the donor paid, figure your gain based on that number. If you sell for less, your loss is the smaller of what he paid or its value when you got the stock. You have no taxable gain or less if you sell for less than the original price or more than its value when it was given to you. Say it was worth $5,000 when it was bought and $4,500 when it was gifted to you. If you sell it for $7,000, you've gained $2,000. If you sell it for $4,000, you've lost $500. If you sell it for $4,750, you don't have a gain or loss.

the nest