5 myths about gift tax laws

Myth No. 4: All gifts are treated equally
5 of 6

"Not all gifts have the same tax consequences," says Cabaniss.

Give someone $10,000 worth of stock, and the recipient pays no taxes at the time of the gift, says Cabaniss. But when the recipient sells the stock, he or she owes taxes on all of the appreciation (or capital gains) since the time it was originally purchased (when you bought it).

Say you have twin girls graduating from college. You give one $10,000 in cash. Cash value received from your gift: $10,000.

You give the other $10,000 in stock that you purchased years ago for $1,000. She sells the stock later that year. Next April 15, she owes taxes on $9,000 worth of appreciation. At the capital gains rate of 15 percent, that's $1,350. Cash value received from your gift: $8,650.

One problem: Recipients "don't really know they are supposed to ask the cost basis (original price) of their gift," says Cabaniss. And unless you can prove the original price, your recipient will be required to pay capital gains taxes based on the full value of the item when he or she sells it, she says.

And that's true with land, stocks or "anything that is called a capital asset," says Cabaniss.




Show Bankrate's community sharing policy
          Connect with us

Connect with us