What would be the tax implications if I gifted securites (stock, ETFs etc) to my spouse? We are both US born citizens. I ask because we don't qualify for any of the married-filing-jointly tax credits (EIC, education etc) and would like to file married-separately as my income is much higher than my spouse's and my spouse would fall into a much lower tax bracket and would also be under the NIIT cap. Can I gift/transfer securities in my name to my spouse, and then ongoing dividends/interest etc would be taxed at her rate? I understand basis for cap gains should she sell would still be my original basis.
You can give anything you want to your spouse for any reason ... then the tax effect of the income or sales will be entered on their return and taxed on it per the IRS rules.
@tagteam Thanks! Our CPA is on holiday through next week, so we'll run everything by him, but is there any downside to this strategy? We don't really lose anything (at least that I can find) filing seperately vs jointly and we have the potential to reduce our taxes by 15% on the income taxed at marginal rates.
The fact that gifted securities carry *your* basis can make a huge difference depending on the securities and circumstances.
Personally, for example, I own some very old securities held in my name only. They have considerable value today but the basis is close to zero so if they are sold or transferred to my spouse the capital gains tax will be very high when sold, but if inherited the tax will be next to nothing. (I have no intention to ever sell the securities during my lifetime so is makes sense to keep them in my name only).
The (almost) zero basis scenario can be problematic in terms of gifting stock. However, that issue presumes the would-be donor will predecease the donee (which does not always happen - "best laid plans").
On the opposite side of this coin, you can also have a scenario where the fair market value on the date of the gift is actually lower than the donor's basis. In that instance, the donee will have to use the FMV on the date of the gift to calculate a loss rather than the original basis.