Here is some important advice for parents, grandparents or others who give their children, grandchildren or others gifts of stock shares – advice that will save the recipient of the gift, or more likely their tax professional, agita and aggravation when they sell the stock 10, 20, 30 years down the road – tell the recipient, in writing, when you purchased the shares and what you paid for them.
You should also tell the recipient, in writing, the “fair market value” of the shares at the time of the gift.
When reporting the cost basis of an investment you sell that was received as a gift you need to know the cost basis of the person who made the gift, the fair market value of the investments on the day the gift was given, and when the person making the gift purchased the investments. Generally, the “holding period” for determining long or short term begins on the date the person making the gift purchased the investment.
You should give the recipient of the stock, or his or her parents if a minor child, a copy of the “confirm” or a highlighted entry in a brokerage account statement, that shows the date of purchase and purchase price and a note that indicates the date of the gift and the stock’s value on that date – easily acquired via an online price quote.
In some cases, the gifted stock is purchased currently and given to the recipient. Grandpa buys 75 shares of stock for his grandson on Monday and gives the stock to him on Wednesday. But this is not always true. The father of one of my clients had invested in PSEG regularly over the years, and participated in the company’s dividend reinvestment program. Years after his initial investment he gifted 75 shares of his PSEG stock to his adult son. And the son sold some of the shares 26 years later.
If you made a gift of stock in the past you should gather the information and give it to the recipient now. You can use Big Charts to get a historical price quote for the fair market value on the date of the gift.
TTFN
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