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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121563  
Subject: Re: how to split a joint account Date: 3/13/2014 7:18 PM
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hondochica: "Thanks so much to all for taking the time to reply. I really appreciate your help!

So - first to recap and clarify: The acct was opened with $24k cash - half mine half sis. $$ were invested in various stocks. No stocks were sold, and no dividends reinvested - but we'll worry about dividends later.

So . . my sister can take all shares of stock whose cost basis totals $12k (original amt) and transfer to her own acct - no questions asked."


I will defer to the tax pros, but I think not. I believe your sister can transfer 1/2 of each stock position to her own account, no questions asked.

"I can gift all of my shares of stock at once, 'cuz the original cost basis is $12k - less than current $14k max, and we can be done with the whole thing!"

No, not as you can explain it. Your cost basis had nothing to do with the value of the gift when you make it. The value of the gift when you make it is the value of the stock that day (exact details left to the resident pros). Nonetheless, you could all your shares at once, but if the current value is more than the annual exclusion, then you would need to file a gift tax return.

"OK - this got tricky: Ira said: "Hondochica needs to know the cost basis of the stocks transferred to sister because sister will use that cost basis and holding period to determine any gain if she sells the stock. She will use the market value on the date of the gift to determine any loss if she sells the stock." OK - I can't quite figure out what you're saying here."

Let me say it another way. one can give away tax losses. if you gift stock 9and not cash), your sister needs to know how to calculate her gain or loss when she sells.

First, holding period - your sister gets your holding period, so she needs to know when the stocks were acquired.

Second, for purposes of calculating gain, your sister needs to kow the purchase basis; you have not paid federal income tax on the gains since you purchased (because you never sold and realized them), so your sister will need to pay them when she sells. Hence, Ira's comment that your "sister will use [your original] cost basis and holding period to determine any gain if she sells."

Losses, however are calcuated differently (because a low rate taxpayer can not give losses to a high rate tax payer. You sister will only realize a loss if she sells for less than he value on the date that you gift the stock. Hence, Ira's comment that your sister "will use the market value on the date of the gift to determine any loss if she sells the stock".

As a result of those rules, it maight make sense for you to sell any losers, realize the loss, and gift your sister the net proceeds. If not, any losses that have accrued to date never get realized, and there may be a range in which your sister call sell without a gain or loss.

An example might make this easier (and I will skip the joing account issues in this example). Assume that you bought 10k of stock 2 years ago. In example one, it it worth 12k on the date you gift it to me. When I sell the gain or loss will be long-term. You do not file a gift tax return because the current value is less than the annual exclusion amount, and when I sell for 14k, I ow capital gains taxes on 4k (i.e., 14k sales proceeds less 10k basis [ignoring trasnaction costs]).

Now, same assumption, you bought 10k of stock 2 years ago. On the day you gift me the stock, it is worth only 8k. When I sell the gain or loss will be long-term. You do not file a gift tax return because the current value is less than the annual exclusion amount. Assume I sell the next day for 8k. I realize no loss because 8k sales proceeds less 8k basis (value on day of transfer) equals zero. Instead, less us say that I sell in 1 year for kk. No loss, becaue 9k - 8k is positive, but no gain either because 9k - 10k you spent to acqurie is sill negative.

"Now. . . dividends . . which were cash deposits into the acct - no dividends used to repurchase stock."

I assume that each you was paying income tax on your share of dividends each year.

"I doubt there is more than $2k of dividends in the account, perhaps I can just gift it all to my sister"

Your sister already owns 1/2 the dividends, why would you gift her her own money?

Keep reading and aksing questions.

Regards, JAFO
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