taxes

5 myths about gift tax laws

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

"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.


 

 

advertisement

Show Bankrate's community sharing policy
          Connect with us
REFINANCE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed refi 4.00%  0.08 4.08%
15 year fixed refi 3.11%  0.08 3.19%
10 year fixed refi 3.13%  0.10 3.23%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.30%  0.03 4.27%
50K FICO-based HELOC 3.97%  0.02 3.95%
100K FICO-based HELOC 3.81%  0.01 3.80%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.75%  0.10 2.85%
48 month used car loan 2.99%  0.06 3.05%
60 month new car loan 3.19%  0.05 3.24%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.99%  0.01 0.98%
2 Year CD 1.22%  0.03 1.19%
5 Year CD 1.87%  0.04 1.83%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.76% --0.00 15.76%
Cash Back Cards 16.44% --0.00 16.44%
Low Interest Cards 11.04% --0.00 11.04%
 
Next
advertisement
WEEKLY TAX TIP NEWSLETTER

Our tax expert Kay Bell provides resourceful tips and advice to help you stay prepared for filing.

advertisement

Connect with us