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Hi,
If I transfer in kind stock to my children and the value is less than $10,000 is the following correct:
1. They pay no tax on the transfer?
2. The "cost basis" for the stock in the transfer is reset to the value on the day of the transfer?
Thanks
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1. They pay no tax on the transfer?
They would not.
And assuming that you only gift $10K to an individual in a year, then you don't have to worry about gift taxes either. (or using part of your unified credit)
(Actually $14K is the limit for 2013)

2. The "cost basis" for the stock in the transfer is reset to the value on the day of the transfer?
If it's a stock that has a gain, no.
If it's a cap. loss - sort of...
http://fairmark.com/capgain/basis/gift.htm


Unless they have a much lower cap gains rate and you have a very appreciated stock, you're probably better off giving them a check.
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1. They pay no tax on the transfer?

The recipient [almost] never pays tax on the transfer, no matter how large. The giver is the one that might have to pay a gift tax.

2. The "cost basis" for the stock in the transfer is reset to the value on the day of the transfer?

No. For calculating a gain, the recipient steps into your shoes and takes over your tax basis and holding period. For calculating a loss, they use your basis and holding period, unless the Fair Market Value on the date of transfer is less than your basis. In that case, they'd use the FMV instead of your cost.

In other words, someone will have to pay the tax on any gain at the time of the gift. If there is a loss at the time of gift, it will be lost and no one can use the loss. (Moral of that story - don't make a gift of stock that is at a loss. Sell it and give the cash instead.)

--Peter
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2. The "cost basis" for the stock in the transfer is reset to the value on the day of the transfer?

What you may have been thinking of is that this is true if you die and someone inherits the stock but that is a tough way to increase the cost basis ;)
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