When an individual with a large portfolio of stock gets older, he might be inclined to give some of those shares to family members as a gift. When you receive stock as a gift, it can help your financial situation, but it can also affect your tax burden in the future.
Stock as a Gift
When you receive a gift of shares of stock, you will eventually have to pay capital gains taxes on the stock when you sell it. Once you sell the stock, you will pay capital gains taxes on the difference between the cost basis of the stock and the selling price. When stock is given as a gift, the cost basis is equal to the amount that the original owner of the stock paid for it.
Finding Cost Basis
In some cases, it may be difficult to find the cost basis of the stock. For example, if the owner of the stock bought it 30 years ago and then gave it to you, he may have no record of the original stock price. In that case, you have to do some research on your own to find the original cost basis. In some cases, you can get the information from stock price histories online.
When you inherit stock from a deceased individual, the rules are a bit different. You actually get a tax break in this situation. Instead of having to count the cost basis as the original amount of money that was paid for the stock, you get to change the cost basis to the price on the date of the owner's death. This usually allows you to increase the cost basis, which can help you save a lot of money on taxes.
When you receive stock as a gift, you may receive stock that is worth less than it was originally. If the stock was a gift, you go by the original cost basis to determine gain or loss. If the individual gave the stock to you as part of an inheritance, you only get to count it as a loss if the stock depreciated in value while you owned the shares.