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How to calculate basis on a stock gift

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in Small Business Tax

Q: I gave my daughter stock shares that I bought for $10,000. On the day I gave her the shares, they were worth about $12,000. Now, it's jumped to about $16,000, and I've advised her to sell. Is her taxable gain the full $6,000? P.L.A., Santa Barbara, Calif.

A: Yes. Since the stock appreciated in value from the time you acquired it, your daughter's basis is the same as yours. She doesn't benefit from any step-up in basis. If your daughter sells the stock now, her gain is $6,000 ($16,000 sales price minus the $10,000 basis). Tip: If the stock had depreciated in value at the time of the gift, any loss would be limited. In such a case, her basis is equal to the fair market value on the date of the gift. Either way, the IRS wins!

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