she may have to use form 8615 to figure her tax
Who Must File
Form 8615 must be filed for any child who meets all of the following
conditions.
1. The child had more than $2,200 of unearned income.
2. The child is required to file a tax return.
3. The child either:
a. Was under age 18 at the end of 2021,
b. Was age 18 at the end of 2021 and didn’t have earned
income that was more than half of the child's support, or
c. Was a full-time student at least age 19 and under age 24 at
the end of 2021 and didn’t have earned income that was more than
half of the child's support.
if she must file this form then the tax is based mostly on your tax rate and if she prepares her return she's going to need access to your return to properly complete the 8615
if not whatever tax bracket she's in
for purpose of determining gain or loss
if the FMV on the date of the gift is greater than your tax basis, your tax basis is used for determining gain
if the FMV is less than your basis on the date of gift then you use FMV for determining loss and use your tax basis for determining gain. if using FMV results in a gain and using your basis results in a loss, there is no gain or loss
example 1)
FMV 15000
your tax basis 9000
your tax basis is used to compute her gain or loss
example 2)
FMV 9000
your tax basis 15000
sell for 12000
since using FMV results in a gain and using your tax basis results in a loss there is no gain or loss for tax purposes
example 3)
FMV 9000
your tax basis 15000
sell for 8000
since using FMV results in a loss that is used as her tax basis
example 4)
FMV 9000
your tax basis 15000
sell for 18000
since using both results in a gain she uses your tax basis
Wow, so thorough. I still am not sure of my answer, though. I think she would get taxed at my rate, but please see my notes within your reply to verify. Also, you use 2021 below, but wouldn't it be 2022? Thank you, AGAIN! I guess I could still gift it but to get the lower tax rate benefit, I need to keep her cap gains lower than $2,200. Do you think that's right? FYI - NerdWallet just ran a story on how to gift high cap gain stocks and have the low-earning receiver not pay taxes. I sent it to my friend who is an accountant and he said it was wrong. https://www.nerdwallet.com/article/investing/gifting-stocks
1. The child had more than $2,200 of unearned income ----- YES When selling the gift, she would be getting an estimated $12k in cap gains
2. The child is required to file a tax return - She will have only the gift and cap gains. So I guess it goes to #3.
3. The child either:
a. Was under age 18 at the end of 2021 - YES:(
b. Was age 18 at the end of 2021 and didn’t have earned
income that was more than half of the child's support - what is the child's support? - NO
c. Was a full-time student at least age 19 and under age 24 at
the end of 2021 and didn’t have earned income that was more than NO
half of the child's support - NO
To keep folks from avoiding taxes by gifting appreciated assests to their dependent children the form 8615 was put in place to keep this from happening. So what you are trying to do is really not going to help as the child would still be taxed at the parent's rate.
If your daughter is an adult, then the cost basis of a gift is the basis of the giver. The recipient also gets the holding time of the giver. So suppose you bought stock for $1000. You hold it for 2 years, then gift it to an adult child when the market value is $1500. The child sells the stock after 1 week and realizes $1550. The child's capital gain is $550 (going back to your cost basis) and it is considered a long term gain (0%, 15% or 20%, depending on her other income) because the total holding time was more than 1 year.
If the child is a minor, there are special rules to prevent you from taking stock that would be a 15% or 20% gain for you and turning into a zero% gain for a child. I can't address those rules but the other experts seem to have it in hand.