• Income ShiftingThe annual gift tax exclusion for 2011 is $13.000. A middle-aged man could give his retired parents up to $26,000 of appreciated securities with no gift tax consequences. If he is married, the man and his wife could give up to $52,000 of appreciated securities to his parents and another $52,000 to her parents this year.
  • The parents in this scenario would retain the original investor’s basis (cost for tax purposes) of the appreciated securities, if they are sold for a gain, and the original investor’s holding period. The new owners would have along-term gain on a sale of appreciated assets held more than one year.
  • As long as the retired couple’s taxable income remains under $69,000 this year, the gains would be taxed at 0%. The retired couple could help pay for their grandchildren’s college tuition with no gift tax consequences.
  • It may be difficult to reap a substantial tax advantage by giving appreciated assets to youngsters, including full-time students under age 24.
2011 Q2 | Income Shifting
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