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Author: hoya95 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: $10,000 maximum gift Date: 1/27/1999 1:40 PM
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I understand that I can gift $10,000 per year to anybody I choose without incurring me or the recipient incurring taxes.

Question: can I gift, say, $15,000 in stock and -$5000 in cash (negative cash amount)without me or the recipient incurring taxes?

Thanks for any info.

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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9061 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 1:49 PM
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This doesn't sound like a gift. It sounds like a sale. I don't think it would qualify for a gift exclusion.

As for your not paying taxes on a gift, just what do you mean? You won't get a charitable contribution deduction if you give to an individual. You will avoid paying capital gains taxes on appreciated stock if you give it away instead of selling it. However, you must report your basis to the recipient, and when they sell the stock, they get stuck with the tax on your gain. This can still be advantageous, if they're in a lower tax bracket, or if they're a charity, and don't pay taxes.

The recipient does not have to report the gift itself as income, but they can be liable for capital gains taxes.

Hope this helps.

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Author: TaxService Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9072 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 3:19 PM
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I understand that I can gift $10,000 per year to anybody I choose without incurring me or the recipient incurring taxes.

Question: can I gift, say, $15,000 in stock and -$5000 in cash (negative cash amount)without me or the recipient incurring taxes?

***You, as an individual, may not gift more than $10,000 to any one individual, in any one year, without having to file a gift tax return. This includes birthday presents, and other gifts, given
in the course of the year. Having said that, the recipient of gifts is not taxed. The donor may be
eventually taxed, depending on lifetime giving, and the size of the donor's estate. The current exclusion is $650,000 (1999). When it comes to gifting stock, generally:), your basis is passed on to the person to whom you make the gift. If the stock was worth $15,000 and your basis was only $10,000, the amount of that gift would be $10,000.

"Jack"

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Author: WilliamLipp Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9074 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 3:39 PM
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TaxService Date: 1/27/99 3:19 PM Number: 9072
When it comes to gifting stock, generally:), your basis is passed on to the person to whom you make the gift. If the stock was worth $15,000 and your basis was only $10,000, the amount of that gift would be $10,000.

Are you sure about this? I thought it was a $15,000 gift, and the recipient had a $10,000 basis in the stock. This could be important to me; I've been studying the possible uses of some stock I have with essentially zero basis.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9096 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 8:01 PM
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[[I understand that I can gift $10,000 per year to anybody I choose without
incurring me or the recipient incurring taxes. ]]

Basically correct. But you can read much more about gift tax issues in the Taxes FAQ area. I would suggest that you check it out.

[[ Question: can I gift, say, $15,000 in stock and -$5000 in cash (negative cash
amount)without me or the recipient incurring taxes?]]

How do you give "negative" cash????? You would have to be a magician. There is no such thing as giving a gift of "netagive" cash.

So you'll have to explain how this "negative" cash issue comes about before I can answer the question. Are you talking about a debt against the stock (such as a mortgage balance)?? If that's the case, please say so and/or provide an example.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. It'll help you with your 1998 taxes, and it's never to early to start planning for your 1999 taxes. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.


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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9104 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 8:41 PM
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[[When it comes to gifting stock, generally:), your basis is passed on to the
person to whom you make the gift. If the stock was worth $15,000 and
your basis was only $10,000, the amount of that gift would be $10,000.

Are you sure about this? I thought it was a $15,000 gift, and the recipient had a
$10,000 basis in the stock. This could be important to me; I've been studying
the possible uses of some stock I have with essentially zero basis.]]

I think Jack just got tounge tied on this one. I do it all the time. I think that what Jack was trying to say was that the BASIS of the gift in the hands of the person receiving the gift would amount to $10k.

I'm sure that Jack knows that if the FMV of the shares was $15k at the date of the gift, the actual gift would be valued at $15k, and the person making the gift would have to use up part of his/her unified credit for the amount of the give in excess of the $10k limit ($5k in this example).

I KNOW that Jack knows this because he has provided the correct answer many times in the past. Most likely was just thinking faster than he could type. As I say, it happens to me ALL the time.

TMF Taxes
Roy

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Author: TaxService Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9111 of 121572
Subject: Re: $10,000 maximum gift Date: 1/27/1999 10:35 PM
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TaxService Date: 1/27/99 3:19 PM Number: 9072
When it comes to gifting stock, generally:), your basis is passed on to the person to whom you make the gift. If the stock was worth $15,000 and your basis was only $10,000, the amount of that gift would be $10,000.

Are you sure about this? I thought it was a $15,000 gift, and the recipient had a $10,000 basis in the stock. This could be important to me; I've been studying the possible uses of some stock I have with essentially zero basis.


***You are correct!:)

For purposes of the gift tax return, The fair market value of a
stock or bond (whether listed or unlisted) is the mean between
the highest and lowest selling prices quoted on the valuation date.
If only the closing selling prices are available, then the fair market
value is the mean between the quoted closing selling price on the
valuation date and on the trading day before the valuation date.
There are other instructions if there were no sales on the valuation
date, but that has naught to do with your particular question.

Stock of close corporations or inactive stock must be valued on
the basis of net worth, earnings, earning and dividend capacity,
and other relevant factors. Generally, the best indication of the
value of real property is the price paid for the property in an
arm's-length transaction on or before the valuation date. If there
has been no such transaction, use the comparable sales method.
In comparing similar properties, consider differences in the date
of the sale, and the size, condition, and location of the properties,
and make all appropriate adjustments. The value of all annuities,
life estates, terms for years, remainders, or reversions is generally
the present value on the date of the gift.

Thank You!!=:)

"Jack"

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Author: hoya95 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9118 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 1:46 PM
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Jack, TMFTaxes, William, et al:

Thanks for your insights. I'm afraid I may not have phrased the question quite properly. Here's my situation:

My mother loaned me $10,000 2 years ago for me to "play the stockmarket". Neither she nor I saw this as a gift to me. In the past 2 years that $10,000 has grown to about $17,000. My problem is that I put that $10,000 with some other money that has always belonged to me and I now have shares of DELL and MSFT in my portfolio that I do not want to sell, ie do not want to pay taxes on. However, I am on margin, and if I give back the $10,000 or $17,000 to my mother in shares of stock I'm afraid to get a margin call (or at the least be way out on margin).

Therefore, I would like to transfer as much of the margin debt over to my mother's account.

I've tried getting an answer from my broker, no luck. TMFTaxes, I also tried hunting around the Tax School area, also couldn't quite figure it out.

Suggestions?

Thanks as always for your help.

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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9121 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 2:30 PM
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So "negative cash" is margin debt. Now this is making more sense.

Is your mother willing to accept a combination of appreciated stock and margin debt to satisfy her loan to you? She would be doing you a big favor, since she would have to choose between

A: facing the possibility of a margin call, and
B: selling stock to satisfy the margin debt, and paying tax on the gain

I notice that you face the same choice right now, and don't want to do either. Why would your mother want to?


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Author: hoya95 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9126 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 4:10 PM
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UU:
<So "negative cash" is margin debt. Now this is making more sense.

Is your mother willing to accept a combination of appreciated stock and margin debt to satisfy her
loan to you? She would be doing you a big favor, since she would have to choose between

A: facing the possibility of a margin call, and
B: selling stock to satisfy the margin debt, and paying tax on the gain

I notice that you face the same choice right now, and don't want to do either. Why would your
mother want to? >

Hi UU--

Thanks for the quick response. Yes, she would be willing to accept the margin debt as her portfolio is a lot bigger than mine and she wouldn't face a margin call. I understand that she would eventually have to pay taxes on the appreciation, but I would continue to pay her back (say next year) to avoid going over the $10,000 limit.

I'm still a little confused by the gift tax though. A previous post (don't remember who) stated that she would not owe any tax even if she were to receive more than $10,000 and implied that I would owe taxes if I gifted more than that amount to her. That doesn't empirically make sense to me. Would anything over $10K be taxed as, I don't know, income or something to her? Would she just have to pay tax at her regular tax rate? In addition to cap gains tax when she does eventually sell the stock?

Ken

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9136 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 7:32 PM
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[[ Thanks for your insights. I'm afraid I may not have phrased the question quite
properly. Here's my situation:]]

[[ My mother loaned me $10,000 2 years ago for me to "play the stockmarket".
Neither she nor I saw this as a gift to me. In the past 2 years that $10,000 has
grown to about $17,000. My problem is that I put that $10,000 with some other
money that has always belonged to me and I now have shares of DELL and
MSFT in my portfolio that I do not want to sell, ie do not want to pay taxes on.
However, I am on margin, and if I give back the $10,000 or $17,000 to my
mother in shares of stock I'm afraid to get a margin call (or at the least be way
out on margin).

Therefore, I would like to transfer as much of the margin debt over to my
mother's account.]]

Why don't you just wait. Does she need the money now??

If not, and you gift the stock subject to the underlying debt (and do it correctly), then you can give FMV of the shares in the amount of $17k, with the underlying margin interest of $7k, and be within the $10k annual limit.

But you began your posts with the thought that the original loan to you of $10k was a loan...and not a gift. So would you treat the transfer as a repayment of that loan?

So I can't really figure out what you are trying to accomplish. If you tell me what you are trying to do, I may be able to help. Heck...you may just be able to write a check out of your margin account for $10k and repay the loan. So I don't know what options that you have, and I don't really understand what you are trying to accomplish.

So there's not much real help that I can give you.

TMF Taxes
Roy

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9137 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 7:32 PM
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[[ Thanks for your insights. I'm afraid I may not have phrased the question quite
properly. Here's my situation:]]

[[ My mother loaned me $10,000 2 years ago for me to "play the stockmarket".
Neither she nor I saw this as a gift to me. In the past 2 years that $10,000 has
grown to about $17,000. My problem is that I put that $10,000 with some other
money that has always belonged to me and I now have shares of DELL and
MSFT in my portfolio that I do not want to sell, ie do not want to pay taxes on.
However, I am on margin, and if I give back the $10,000 or $17,000 to my
mother in shares of stock I'm afraid to get a margin call (or at the least be way
out on margin).

Therefore, I would like to transfer as much of the margin debt over to my
mother's account.]]

Why don't you just wait. Does she need the money now??

If not, and you gift the stock subject to the underlying debt (and do it correctly), then you can give FMV of the shares in the amount of $17k, with the underlying margin interest of $7k, and be within the $10k annual limit.

But you began your posts with the thought that the original loan to you of $10k was a loan...and not a gift. So would you treat the transfer as a repayment of that loan?

So I can't really figure out what you are trying to accomplish. If you tell me what you are trying to do, I may be able to help. Heck...you may just be able to write a check out of your margin account for $10k and repay the loan. So I don't know what options that you have, and I don't really understand what you are trying to accomplish.

So there's not much real help that I can give you.

TMF Taxes
Roy

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9145 of 121572
Subject: Re: $10,000 maximum gift Date: 1/28/1999 7:59 PM
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[[I'm still a little confused by the gift tax though.]]

Ken...

Go to the Taxes FAQ area and read up on the various gift tax posts there. You'll get a pretty good foundation.

[[ A previous post (don't remember
who) stated that she would not owe any tax even if she were to receive more
than $10,000 and implied that I would owe taxes if I gifted more than that
amount to her.]]

Remember that gifts are not taxable to the person receiving the gift, nor deductible by the person giving the gift.

If the giver goes above the $10k limitation, they have made a "taxable" gift of the excess. And this excess will likely be used to reduce their unified estate tax credit...and now things REALLY get complicated.

[[ That doesn't empirically make sense to me.]]

That's because you haven't quite yet done all of your reading in order to build a foundation.

After you are finished with the Taxes FAQ area, if you would like to read what the IRS has to say about the gift issues, check out IRS Publication 950 at the IRS web site.

TMF Taxes
Roy

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. It'll help you with your 1998 taxes, and it's never to early to start planning for your 1999 taxes. So just click on this link (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm and you'll be right at the home page. Check it out. Finally, if you need to get to the IRS web site, click on http://www.irs.ustreas.gov to go directly there.


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