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Author: cstrohm Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120826  
Subject: Almost worthless stock - strategy question(s) Date: 7/31/2003 9:56 PM
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First time poster on this board. Thought I'd try to pick your collective brains over here. Sorry about the length - I'll try to keep it short.

Some facts:
Mom holds 400 shares of Lucent Technologies with a basis of about $36.00 per share.
Shares were bought jointly when Dad was alive.
Dad died in Sept., 2002 when LU was at $1.00
Mom has income of about $12,000 per year from Social Security, pension, annuities, IRAs, etc.
Mom pays next to no federal taxes.
Both my sister and I are in the 28% bracket.

(1) We were told one half of the LU shares Mom holds have assumed a basis price of $1.00 (instead of $36.00) because of Dad's death. Is that right?

(2) Mom wants to get rid of all 400 shares. Can she give them to my sister and me and then we sell them and use the losses? Based on the answer to question #1 above, she'd either give us all 400 or sell the 200 that have a basis of $1.00 and give us the other 200. Basically, can we use the losses from a gift of stock? She can't.

(3) Mom gives us money each year but always under the annual $11,000 gift exclusion amount. Would the gift of the stock be valued at the basis cost or at the current value for the $11,000 limit?

Thanks in advance.
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66342 of 120826
Subject: Re: Almost worthless stock - strategy question(s Date: 7/31/2003 10:47 PM
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First time poster on this board. Thought I'd try to pick your collective brains over here. Sorry about the length - I'll try to keep it short.

Some facts:
Mom holds 400 shares of Lucent Technologies with a basis of about $36.00 per share.
Shares were bought jointly when Dad was alive.
Dad died in Sept., 2002 when LU was at $1.00
Mom has income of about $12,000 per year from Social Security, pension, annuities, IRAs, etc.
Mom pays next to no federal taxes.
Both my sister and I are in the 28% bracket.

(1) We were told one half of the LU shares Mom holds have assumed a basis price of $1.00 (instead of $36.00) because of Dad's death. Is that right?


Possibly. If they live in a community property state it's possible that all 400 shares now have a $1 basis.

(2) Mom wants to get rid of all 400 shares. Can she give them to my sister and me and then we sell them and use the losses? Based on the answer to question #1 above, she'd either give us all 400 or sell the 200 that have a basis of $1.00 and give us the other 200. Basically, can we use the losses from a gift of stock? She can't.

No. You cannot use the loss from a gift of stock, it will be lost forever. If she gives you shares that have a cost basis of $36 (to her), you will have to track two values, the $36/share cost basis and the share price on the date of the gift. Any gains will be measured against the $36 cost basis. Any losses will be measured against the date of gift value. If you sell the shares for a price in between the two bases, there will be no gain or loss to report.

(3) Mom gives us money each year but always under the annual $11,000 gift exclusion amount. Would the gift of the stock be valued at the basis cost or at the current value for the $11,000 limit?

For gift purposes, the stock would be valued at the value on the date the stock was transfered.

Ira

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Author: RoseSmeller One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66344 of 120826
Subject: Re: Almost worthless stock - strategy question(s Date: 8/1/2003 1:59 PM
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As Ira explained, your Mom can't give you her losses, but there may be another way to get some benefit to the family. You and/or your sister could give her stock with capital gains equal to her capital loss, and she could sell both the same year, avoiding the tax on the gains. Obviously, this depends on you having an appropriate stock, and you must still consider the gift taxes.


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