{"id":18397,"date":"2015-12-02T18:34:02","date_gmt":"2015-12-02T23:34:02","guid":{"rendered":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/12\/business-report-capital-gains-to-gift-or-not-to-gift.html"},"modified":"2017-11-08T13:46:57","modified_gmt":"2017-11-08T18:46:57","slug":"business-report-capital-gains-to-gift-or-not-to-gift","status":"publish","type":"post","link":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2015\/12\/business-report-capital-gains-to-gift-or-not-to-gift\/","title":{"rendered":"Business Report: Capital Gains: To Gift Or Not To Gift"},"content":{"rendered":"
\n
\n

\"brittiny\n<\/div>\n

\n

Brittany Razzano is an associate with the
\nHerzog Law Firm in Saratoga Springs.\n<\/p><\/div>\n<\/div>\n

BY BRITTANY RAZZANO, ESQ.<\/p>\n

What is a capital gain? Generally, a capital
\ngain results from a sale of an asset, such as a
\nstock, at a higher price than the owner originally
\npaid. What the owner paid for the asset
\nis known as the cost basis. If the sale price
\nis higher than the cost basis, the difference
\nbetween the two is a capital gain.<\/p>\n

A long-term capital gain is a gain resulting
\nfrom a holding period of more than one year.
\nFor most taxpayers, a long-term capital gain
\nis taxed at 15 percent (20 percent for the top
\ntax bracket). A short-term capital gain is a
\ngain resulting from a holding period of 12
\nmonths or less. A short-term capital gain is
\ntaxed as ordinary income, which varies depending
\non the taxpayer’s income tax bracket.<\/p>\n

Beyond the basics of capital gains tax rules,
\nwe must consider the effects of gifting and
\ninheriting capital assets. When considering
\nthese events, we must also think about the
\npossible gift tax and estate tax ramifications.
\nThe current federal annual gift tax exclusion
\namount is $14,000 per person.<\/p>\n

This means that a donor can give each
\nperson $14,000 per year without having to
\npay or report any gift taxes. If the donor is
\nmarried, they can give away $28,000 per year
\nper person. It is important to note that while
\nfor tax purposes, a gift of $14,000 or less is
\ndisregarded, such a gift may be considered a
\ntransfer that could trigger a penalty period
\nfor a Medicaid look-back period, if the donor
\nhas to go into a nursing home within five years
\nof making the gift.<\/p>\n


\nIf a donor gifts more than the annual gift
\ntax exclusion amount, that donor is obligated
\nto file a gift tax return (IRS Form 709) to report
\nthe excess above the exclusion amount.
\nFor example, a widow gives her son $20,000
\nin one calendar year. She must file a gift tax
\nreturn and report $6,000 (the excess above
\nthe exclusion amount). She will not owe any
\ntaxes on making the gift and the son will
\nnot owe any taxes for receiving the gift at
\nthat time.<\/p>\n

However, if the widow passes away with
\nmore than the federal estate tax exclusion
\namount, that gift, along with any other reportable
\ngifts that she made during her lifetime,
\nwill be included in her gross estate for
\nfederal estate tax assessment purposes. The
\ncurrent federal estate tax exclusion amount
\nis $5.43 million. This amount is adjusted
\nannually for inflation. In general, there is no
\ngift tax in New York. The current New York
\nestate tax exclusion amount is $3,125,000
\nuntil April 1, 2016, when it will be increased
\nto $4,187,500 until April 1, 2017, when it will
\nbe increased to $5.25 million.<\/p>\n

The most common capital asset that is
\ngifted or inherited is stock. Many older people
\nwish to gift their assets to their loved ones
\nwhile they are still alive to see it. This may not
\nbe a good idea for tax purposes or for longterm
\ncare and Medicaid planning purposes.<\/p>\n

The concepts of carryover basis and
\nstepped-up basis are the key focus to the capital
\ngains planning discussion surrounding
\nthe comparison of gifting versus bequeathing
\n(i.e., naming someone in your will). For
\ntax purposes, if someone gifts a capital asset
\nduring their lifetime, the recipient steps into
\nthe donors shoes and takes their basis. This
\nis known as carryover basis. In contrast, if
\nsomeone inherits a capital asset they receive
\na stepped-up basis in the asset as of the date
\nof death.<\/p>\n

The easiest way to illustrate this is with
\nan example. Let’s assume that the capital asset
\nis 1,000 shares of stock with a cost basis
\nof $5 per share (total cost basis of $5,000).
\nThe stock is worth $25 per share today (total
\nvalue of $25,000). If a donor gifts the stock
\nwhile she is alive, the recipient will take her
\nbasis of $5 per share, which means that if the
\nrecipient were to sell the stock, they would
\nincur a capital gain of $20,000, resulting in
\na $3,000 capital gains tax.<\/p>\n

If that same donor passes away and the
\nrecipient inherits the stock, they will receive
\na stepped-up basis to $25 per share (the value
\non the date of death). If the recipient were to
\nsell the stock for $25 per share, they would
\nnot owe any capital gains tax as a result of
\nthe stepped-up basis. It is important to note
\nthat there are variations of basis step-up adjustments
\nthat result from joint ownership,
\ndepending on the relationship of the joint
\nowner to the decedent. If capital gains tax
\nis the only consideration when determining
\nwhether it is best to gift or bequeath, the
\nstep-up in basis is a significant advantage.<\/p>\n

With the holidays approaching, you may
\nhave questions about what’s right for your
\nsituation, to gift or not to gift? As discussed,
\ntax is not the only factor that should be considered
\nwhen making this determination.
\nIt is important to consult with your estate
\nplanning attorney, in conjunction with your
\nfinancial advisor and accountant, before
\nmaking gifting decisions.<\/p>\n

Razzano is an associate with the Herzog
\nLaw Firm in Saratoga Springs.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Brittany Razzano is an associate with the Herzog Law Firm in Saratoga Springs. BY BRITTANY RAZZANO, ESQ. What is a capital gain? 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