Question

Can a 19yr old full time student (minor) gift to a sibling (16yr old minor) and sibling pay the gains taxes if sold?

Forum|Forum|6 years ago
March 24, 2020
1 reply
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I gifted stock to my son when we was very young. That stock has increased in value over many years. He turned 19 earlier this year and is a full time student.

Can he gift some of this stock to one of his younger siblings (16yrs old)?

If he can, I expect that they would pay taxes on any gains with a cost basis dating back to the original purchase and he would not pay any taxes on the stock he gifted. Is that true?

O

Opus 17

Employee

Of course, you can give anything you own to someone else, and if they sell it at a profit they pay the tax. However, if you are thinking that this will save the family by lowering its taxes, you may be in for a surprise.

Whomever owns the stock when it is sold will pay capital gains tax on the difference between the cost basis and the selling price. In the case of a gift given multiple times, the cost basis for the gift is the purchase price paid by the original purchaser.

However, you are going to run into a bulldozer called the “kiddie tax”. I can’t explain it completely in a short post but the overall concept is that children are taxed at their parents’ rate on unearned income (passive income, investments, etc), to prevent parents or others from transferring assets to their children to avoid taxes. The standard deduction for a child with unearned income is $350. Any income over that will be taxed at a higher rate than the child would be taxed on earned income from working.

What I can’t tell you is whether the child will still receive the benefit of the lower long-term capital gains tax rate. Without analyzing the situation completely, I suspect that the child will be no better off than if the current owner sells the stock, and could be worse off. You may want to test some different scenarios and TurboTax or run the situation by a qualified tax advisor.

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