@SteamTrain wrote:
I think you will need to let the recipient(s) know the "basis" for any stocks you gift to them too.
I'm pretty sure a stepped-up basis does not apply to gifted stocks, and they will have to use your basis if the recipient sells the stock at some future date. The brokerages involved may or may not have/transfer that basis.
@Opus 17 @rjs Am I correct here? Or off base with this advice?
Completely agree. Whenever the recipient sells the stock, the capital gains will be the difference between the sales proceeds and the owner's cost basis. Cost basis is (more or less) the amount of already-taxed money that was invested in the property. In the case of a gift, the recipient gets the cost basis of the giver.
For stocks, the cost basis of the giver is usually what the giver paid when they bought the stock, but basis can be affected by splits and reverse splits, as well as by dividend reinvestment. The broker will usually keep track of basis for the stockholder.
If the parent here gifts the stock by opening a new account in the child's name with the same broker, and transfers the stock that way, the broker should also transfer the basis information. But if the stock will be moving brokers, the basis information might not be transferred. Certainly the new owner/recipient should ask whether their broker is tracking the basis or whether they need to do it. When the new owner sells their shares, they will need to indicate the basis. If they are audited by the IRS and can't prove the basis with adequate records, the IRS can assign any basis they think is reasonable, which could result in higher capital gains tax.
