Can I gift stocks to my son and have him sell those from his trading account and get tax break up to $27,000 in capital gains that he can use to pay college tuition fee?

[TomYoung · Accepted solution]

I'm not sure where the $27,000 is coming from.  You and your spouse, (I'm assuming you're married), can gift $28,000 (FMV) of stock to your son.  Assuming the FMV of the stock exceeded your basis and your son sold the stock immediately he'd use your basis to calculate the gain.

Whether there would be a "family" tax savings or not depends on whether the "kiddie tax" is applied to that trade, or not.  If it is applied then there's little "family" tax savings.

The kiddie tax is explained on the IRS's site here:

https://www.irs.gov/taxtopics/tc553.html

and the criteria for the kiddie tax applying are:

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Child's Tax Return

Figure the child's tax on Form 8615 (PDF), Tax for Certain Children Who Have Unearned Income, and attach it to the child's tax return when:

1. The child's unearned income was more than $2,100
2. The child meets one of the following age requirements:
   • The child was under age 18 at the end of the tax year
   • The child was age 18 but less than 19 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships if the child was a full-time student), or
   • The child was a full-time student who was at least 19 and under age 24 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships)
3. At least one of the child's parents was alive at the end of the tax year
4. The child is required to file a tax return for the tax year, and
5. The child doesn't file a joint return for the tax year

A child required to file Form 8615 may be subject to the Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of the child's modified adjusted gross income (MAGI) over a threshold amount.
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Tom Young

[anisharora]

Hi Tom,
Thanks

The child was age 18 but less than 19 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships if the child was a full-time student),

Does my son (would be 18 this year) pay file form 8615 and pay 3.8% tax?

[TomYoung]

It does sound like  your son would file Form 8615 but certainly wouldn't be subject to the NITT.

[anisharora]

Thanks Tom, you mean my son file 8615 and pay no tax at all on the capital gains?

[TomYoung]

No, absolutely not.  I thought I made that clear and you should understand that if you read the IRS's short piece.  Form 8615 is where a good chunk of the capital gain is taxed at YOUR tax rates.  The NITT is an entirely separate tax, frequently called the "Medicare Tax" that was instituted to help fund Obamacare.