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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: of 121061  
Subject: Re: Gifts and Taxes Date: 7/10/1997 11:50 AM
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<<1. I recently got a solicitation from a charitable organization (one that I like and actually contribute to) in which it explained that if I made a contribution in the form of stock, I wouldn't owe taxes on any capital gain. Is this true? Let's take an example. Suppose I bought 100 shares of XYZ 2 years ago at $25 each, and today the price is $50. I would seem to have, at the moment, an unrealized capital gain of $2,500. If I gave all 100 shares to a legitimate charitable organization, I wouldn't pay a
ny tax on this $2,500? And what, if anything, would I be able to deduct as a charitable contribution?>>

Not only legal, 'Cuda, but a great way to make a charitable contribution. There are some restrictions, the main one being that the stock has to be "qualified appreciated stock", or stock that you have held for more than one year on the date of transfer.

In your situation, you would get a charitable contribution deduction for $5,000 (100 shares @ $100/share). You would also NOT have to report the appreciation of the stock on your tax return. A win/win situation for all concerned.

I have a much more detailed post on this issue on the AOL board. I'll try to drag it over here, since I see that it is not in the web site FAQ.

<<2. This one is even easier. Same deal on the stocks: bought 100 shares at $25 and the price has now risen to $50. Suppose I want to give my son a wedding gift of these 100 shares. For tax purposes, is this the same thing as selling the shares, and realizing a capital gain of $2,500 -- thereby owing capital gains tax on this amount? Or not? And what would my son's basis be -- $50 per share? [And how would he be required to document this: keep a copy of that day's Wall Street Journal?]>>

Generally, your son would carry over your basis on the stock ($25/share in your example). You would owe no capital gains on the stock. When sold, your son would be liable for the taxes. But this might be a good thing, especially if your son is in a lower tax bracket than yours (this is a classic income shifting gambit).

And because the gift that you are making to your son is less than $10,000, you will not even have to complete and file a Gift Tax return (Form 109).

As far as documentation, you want to make sure that you provide:

The date of purchase of the shares
Your cost basis of the shares
The FMV of the shares on the date of transfer (a copy of the WSJ should suffice to document this price)

Again, this is a FAQ issue on the AOL side of things. I'll try to drag it over here in the near future so you can read up on it a little bit.

Thanks for the questions. Hope the answers helped.

TMF Taxes
Roy
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