Intricacies of Gifts Explained

Question: I understand that I can give up to $10,000 to a child without incurring a gift tax. The child assumes the original basis of the stock. Let's say I have some stock I purchased at $50 a share. Now it is at $70 a share. If I gift 100 shares of stock to one child, is it considered a $7,000 gift or a $5,000 gift? Do I pay capital gains tax on the $20 a share?

Answer: Nearly everyone is familiar with estate taxes, which are taxes on the property we own at death. If you try to give property away prior to your death, then the Internal Revenue Code imposes a gift tax that is, in reality, the same as the estate tax.

You may give as much as $10,000 per year to each of as many individuals as you care to without incurring this tax. If your spouse also makes a gift, each individual may receive $20,000 per year.

The value of the gift is determined at the time the gift is made, regardless of what your basis is in the property. So, in your example, if you gift 100 shares of stock worth $70 per share, the value of your gift is $7,000.

Your basis in the stock carries over to the person receiving the gift (the don