What Capital Gains Is Owed For The Sale Of Gifted Stock?

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What Capital Gains Is Owed For The Sale Of Gifted Stock?

I have shares of Cablevision Systems Corporation (CVC) stock that was gifted to me. The company was recently sold to Altice (ATSVF). The buyout is going to be for about $39.50 a share. Since I did not pay for it, what would my capital gains tax be? I am a disabled veteran with under $20,000 of yearly income.

Whenever stock is gifted to another person, the recipient assumes the giver’s cost basis if there is an unrealized capital gain on the day of the gift. If there is an unrealized capital loss, the recipient assumes the current value as their cost basis.

In other words, an unrealized gain transfers with a gift, but an unrealized loss does not.

In your case, you would need to know the original cost basis of the person who gifted you the stock in order to know how much capital gains you are going to realize.

Here are some tax planning ideas for others who might be in similar situations:

  1. If you know the original cost basis from the person who gave you the stock, you can compute what capital gains you are about to realize and the resulting tax burden.
  2. If you know the approximate date the person who gave you the stock first purchased it, you can look up the historical prices around that time and guess the approximate cost basis.
  3. At your level of income, your federal capital gains tax rate is probably 0%. Depending on your filing status (married or single) and the amount of gains, you may owe very little in capital gains tax.
  4. If you were charitably inclined and in a higher tax bracket, you could gift your CVC stock before the buyout in order to avoid the capital gains and get a tax deduction.

But again, the short answer to your question is that your cost basis is the lower of the cost basis of the person who gifted it to you or the value on the day he gave it to you.

Oddly enough, it is better to leave stock to a family member in your estate plan than to give them the stock while you are alive. If you leave it to them in your estate plan, they receive a “step up” in cost basis and all of the appreciation during your lifetime would be rendered tax-free. But if you gift them the stock right before your death, they have to assume your very low cost basis and might owe a great deal of capital gains.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.