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Originally Posted by Fastskiguy
OK and I have a quick followup.....let's say the old person gives the other person 1 mil of appreciated stock, no tax. Until they sell it, then gains taxes.
OK....when the old person dies is the cost basis stepped up like it would be in a "regular, passed the stock when he died" type scenario?
I'm guessing "no" as once it's given then it's the young persons' stock and so when or if the person dies makes no difference.
Which, if true, makes giving appreciated assets when you are close to dying a much more difficult decision. You'd like to give it while you're alive but the taxes (again, on appreciated assets) are definitely a factor!
Joe
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The key is the cost basis of the stock. With a gift, the recipient of the stock must keep the same cost basis that the giver had. So, if the giver had a cost basis of $10K, the recipient must live with that basis. But, with an inheritance, the cost basis is "stepped up" to the stock value at the time of death (although, in some cases, I think the beneficiary may be able to opt to use the stock value 6 months after death instead). Once the gift or inheritance takes place, the cost basis is set and the owner of the stock must pay a capital gains based on the sale price minus the cost basis. It doesn't make any difference when the giver dies after he made the gift.