The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Rubic on December 08, 2015, 08:04:14 AM
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Some time ago I gifted my nephews and nieces with shares of an individual stock. In the intervening years, the stock has gone up by 400%. Since they are all minors with minimal incomes and the individual amounts are below the long-term capital gains threshold of $36,900, I'm considering if it would be advisable for their parents to sell and repurchase the shares to raise their cost basis.
Example: If the gifts were originally $5000 and each niece/nephew has stock now worth $20,000, by selling and repurchasing they could eliminate $15,000 in taxable gains when they would again sell at a later date, e.g. for a down payment on a house.
Note: The wash sale rule doesn't apply in this situation because the stock is being sold as a gain, not a loss.
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EDIT: Saw your note, this might be more appropriate in that case:
https://www.bogleheads.org/forum/viewtopic.php?t=156519
All you need to think about is kiddie tax rules
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Some time ago I gifted my nephews and nieces with shares of an individual stock. In the intervening years, the stock has gone up by 400%. Since they are all minors with minimal incomes and the individual amounts are below the long-term capital gains threshold of $36,900, I'm considering if it would be advisable for their parents to sell and repurchase the shares to raise their cost basis.
Example: If the gifts were originally $5000 and each niece/nephew has stock now worth $20,000, by selling and repurchasing they could eliminate $15,000 in taxable gains when they would again sell at a later date, e.g. for a down payment on a house.
Note: The wash sale rule doesn't apply in this situation because the stock is being sold as a gain, not a loss.
Umm how old are the kids? Kiddie tax is made to not allow this. It might be taxed at their parents tax rate. Look up kiddie tax. If they are dependents and under 24 I believe they can only sell $1800 or so at their tax rate, the rest goes onto the parents return. I'm a tax preparer, but need to look up the rules.
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It appears they will have to wait until they are no longer dependents:
http://www.bankrate.com/finance/money-guides/irs-rules-for-child-s-investment-income.aspx
But there might be a short window in a year when they graduate from college and start working which may allow them an opportunity for tax gain harvesting.
Thanks for the replies.
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Yeah, they can harvest up to $2,000 of gains per year tax-free. After that the kiddie tax comes into play, making any subsequent gain be taxed at the parents' rate.
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That's pretty neat. Do a few thousand now, a few thousand after Jan 1, and then repeat in Dec 2017/Jan 2018, to minimize the work and remembering to be done (only benefit to earlier in a year is if they pass an age threshold that year).