One issue that many individuals forget about when they approach the idea of gifting is the issue surrounding possible taxes. Most Americans are aware that each person may gift up to $13,000 annually to anyone they choose without the need to file a gift tax return. Many Americans are also aware that, under the 2012 laws, when they die, they may gift up to $5,120,000 without incurring any gift tax liability. In these cases, a gift tax return must be filed but there will be no gift tax due. The forgotten tax is the potential capital gains tax.
When an individual gifts an asset, the asset retains the original basis (the donor’s basis). This differs from an inheritance at death. When an individual receives an inheritance, the inherited assets receive a step up in tax basis to the current market value. The individual therefore does not have to pay any capital gains taxes if they decide to liquidate the assets to cash.
Let’s assume I have stock worth $100,000 that I wish to give to my daughter, Erin. I originally paid $50,000 for the stock several years earlier. If I gift Erin the stock, she retains my basis of $50,000 in the stock (now worth $100,000). When she sells the stock, she will have to pay capital gains tax on the growth. In my example she would pay capital gains tax on $50,000 (stock worth $100,000 less the basis of $50,000), if she liquidated the stock upon receipt of it. It is important to remember this “forgotten” tax when looking at gifting strategies with the end of the year quickly approaching.
Morris Hall Can Protect You in Today’s Litigious Society:
We live in a litigious society, where over 1 million lawsuits are filed every year in America alone. Financial predators are looking for ways to take funds from others and often use litigation as their means to do so. At Morris Hall we provide your assets and your loved ones with important protections that can prevent financial predators from taking advantage of you. We do this through proper and current estate planning techniques. With an MH living trust, we can also protect your property, assets and loved ones from probate, estate taxes, gift taxes, creditors, Medicaid spend-down, conservatorship or guardianship proceedings, ex-spouses and more. A living trust also keeps your asset and beneficiary information private and secure to avoid giving financial predators information to use against you and your family. Without a living trust, this information will be made public. For those living in Arizona, we serve the areas of Phoenix, Mesa, Gilbert, Fountain Hills, Scottsdale, Cave Creek, Prescott, Flagstaff, Sedona, Tucson, Sonoita, Arrowhead, Avondale, Goodyear and Tempe. In New Mexico we serve the areas of Albuquerque, Santa Fe, Las Cruces, Rio Rancho, White Rock, Alamogordo, Truth or Consequences and more. Contact us today at 888.222.1328 to schedule an appointment with an attorney in your area!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.