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DeweyJohn: "Hi! I have been lurking here for quite some time. This my first post to any discussion board."

Welcome.

"I am looking for information on tax ramificatations of transfering stock to an adult child. Is this considered a gift?"

Yes.

"Can only 10K be transfered tax free?"

Sort of. First, I think that annual exclusion has gone up to 11k (from old 10k), but one of the other regulars should confirm. The annual limit is a per giver/per recipient limit per calendar year. Value for gift tax purposes would be FMV at time of transfer.

You do not state whether you are married, or whether adult child is married. If yes, then each person can give to the other, so that if both you and adult child are married (to other people, not to each other), then it is possible to give up to 4x the annual exclusion.

You give 10k to child.
Your wife gives 10k to child.
You give 10k to child's spouse.
Your wife give 10k to child's spouse.

To the extent that you exceed annual exclusion, it does not necessarily mean that a gift tax will be due. You will need to file a gift tax return, and then you can apply part of your lifetime equivalent to avoid the tax but forever using that portion of the equivalent. The lifetim limit a few years ago was equivalent to $600,000 in gifts, but that number has increased. It mght be 750k for 2003; one of the regulars will need to confirm. Only if you have already used up lifetime equivalent will a gift tax be due.

"How does this affect capitol gains? For us and the child? It will eventualy be inheirited but with the current economy and her job loss it would better serve her."

Your child gets your basis (and holding period) for purposes of calculating capital gains. For calculating capital losses, child gets lesser of your basis or FMV at time of transfer (and your holding period); IOW, no giving away capital losses. You, the donor, would not pay any capital gains. Child, donee, would otherwise pay pursuant to normal rules, when the gain or loss is realized.

Hope this helps.

Regards, JAFO


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