Hypothetical Tax Question

[Anastasis]

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So say I recieved a gift of stocks from a relative (worth less than 11k). I know that gift isn't taxed, BUT if I sell the stocks to buy something else, pay for med school, or reinvest would the income then become taxable?

Also - would it matter if I waited a year? (I know investments held more than a year are subject to capital gains tax and not income tax).

 

[Tired Pigeon]

I think the gain you make when you sell is taxable. This would be the price at which you sell MINUS the value at the time of the gift (the 'cost basis') for your stock. I think the one year thing has to do with whether you can have that gain taxed at a lower rate (as a long-term capital gain) instead of being taxed at the rate of ordinary income; if you're already in a really low tax bracket I'm not sure it makes much difference.

Just to emphasize, I'm NOT an accountant or financial advisor - just someone who has paid taxes on stocks in the past. The IRS guidelines should also spell things out pretty clearly, since this is not really a deeply complicated transaction. If you're talking about a serious amount of money, though, it's probably worth it to consult a professional.

 

[etf]

yeah, what tired pigeon said is essentially correct. your basis is whatever the value was the day the transfer completed, and if you hold for a year you can count it as a long term gain; otherwise it's ordinary income.

 

[Anastasis]

Thanks guys 🙂

Isn't there some kind of packet I can order from the IRS that explains tax law? (at least the simple aspects of it).

 

[IceMan0824]

Thanks guys 🙂

Isn't there some kind of packet I can order from the IRS that explains tax law? (at least the simple aspects of it).

There is, but I don't think you want to read it, or flip through it for that matter.

Here

 

[edmadison]

Sorry, the above advice is WRONG. The cost basis for a gift is whatever the cost basis the donor had for that security, which may be very low. The value on the day you received it is irrelevant. The basis only "steps-up" if you inherit the security. Finally, the recipient doesn't need to worry about gift taxes -- that's the donor's obligation.

Ed