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Author: donk23 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Re: Income shifting Date: 9/28/2000 3:51 PM
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This is my first post to the tax strategies board. I hope that someone can tell me if the following income shifting stratgey would be OK or if it would somehow raise a red flag at the IRS?

My son is in his sophomore year of college and I need to sell some appreciated stock to pay for his next semester (last year he paid about 40% of the cost from his own savings but that is gone now). Since he is in the 15% tax bracket, can I give him the stock as a gift and then have him sell it and pay his college bills from the proceeds? As I understand, he would still owe capital gains taxes, but at 10% instead of 20% that I would owe. I also know that if the gift is for more than $10,000, I have to look out for gift taxes. Also, I read about a lower capital gains rate of 8% after Jan. 1. If I gave him the stock (which is more than 5 years old), could he sell it after Jan. 1 and only owe 8% capital gains tax?

Any advice or places to look for answers would be welcome.


Your strategy of shifting the capital gains to your son will work nicely (subject to the effects on aid qualification pointed out by others).

Regarding a gift in excess of $10,000, if you are married your spouse may consent to giving 1/2 of the gift thereby allowing you to gift up to $20,000 per year. If your son were married, both you and your spouse could give the couple $20,000 per year. Any gift in excess of these limits doesn't automatically mean that a gift tax will be due. The way that it works is that any excess over the annual exclusion counts toward your lifetime unified credit. So unless you've already used up the entire unified credit (currently equivalent to $675K gifted) you'll not likely owe any tax for this year.

Regarding the 8% ultra long term rate, my understanding is that this only applies to assets acquired on or after 1/1/2001 and then held for 60 months.
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