This is a rather late response, but it appears your message didn't have to do with a 1998 tax return so perhaps the question is still relevant.
d) I'll start with your last question. If your wife's parents inherited the stock, their basis is not the original cost. Instead, their basis is equal to the value of the stock on the date they inherited it (or the alternate valuation date, if that was elected). For example, if the inherited the stock when it was trading at $20, you can forget about the original $5 purchase price. It's as if they bought it for $20.
a) Now going back to your first question, when your wife sells she will report gain or loss based on the difference between the sale proceeds and the basis as described in the preceding paragraph.
b) The price on the date of the gift is relevant only if the price is lower than the parents' basis. That seems unlikely unless your wife's parents inherited the stock quite recently.
c) The amount the parents can transfer without making a taxable gift is based on the value of the stock and has nothing to do with their basis. It's worth noting, though, that even if the gift exceeds $20,000, there won't be any current federal gift tax unless the parents have already made taxable gifts of at least $650,000. They should consult an estate planner to be sure, but it probably is not a disadvantage for them to make a larger gift if that is what they want to do.
Thanks for your comments on my web site.
Kaye Thomas, author
Fairmark Press Tax Guide for Investors
fairmark.com |
