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How does taxation on stock portfolios work?

post #1 of 33
Thread Starter 
I'm inheriting a stock portfolio from one of my relatives as a graduation gift that he's been contributing to since my early years as a homo sapien, and I'm wondering what the tax implications are for cashing out the stocks.

As far as I'm aware, the portfolio took a LARGE hit due to the financial crisis and is worth roughly half of the total, original cash investments that went in to purchase the stocks. So, no capital gains were made.

Does that mean I can sell all the shares without being taxed on it? Would I still be taxed because it counts as income? I was never the one to contribute to the portfolio, so I don't know how my inheriting it would be considered as. Would I have to report it to next year's tax forms?

Thanks!
post #2 of 33
I'm sure someone else will be able to help you regarding taxation in the US. That being said, if it is currently worth half the original total, it sounds like selling the shares would be the worst option. Unless you are in a severe financial crisis yourself...
post #3 of 33
You'll need to mention what country you're in. One thought if it's below book value and not in your name the current holder might be better off liquidating and booking the loss. Handing you a cheque.
post #4 of 33
Thread Starter 
I'm in the US. I'm not in severe financial crisis, but the current value of the portfolio is a little under $10K, so, to me at least, I don't see it as worthwhile to keep waiting for it to bound back up. As a recent (jobless) graduate, I need all the cash I can get until I land a stable job.
post #5 of 33
Most likely you'll end up with a cost basis on the date the portfolio becomes yours. If when you sell it's moved up you'd have a gain. But best for an American to answer -)
post #6 of 33
Your receipt of the stock portfolio as a gift or via inheritence doesn't create taxable income to you. Did you inherit the stock or is the relative who gave it to you still alive?
post #7 of 33
Quote:
Originally Posted by GreenFrog View Post
I'm in the US.

I'm not in severe financial crisis, but the current value of the portfolio is a little under $10K, so, to me at least, I don't see it as worthwhile to keep waiting for it to bound back up. As a recent (jobless) graduate, I need all the cash I can get until I land a stable job.

As long as the value at the time of the transfer is under the IRS gift threshold ($13,000), there is no tax implication at transfer. I would assume that your basis would be the value @ the time of the transfer, and you would have to pay capital gains on anything above its current value.
post #8 of 33
Thread Starter 
Quote:
Originally Posted by pistolero View Post
Your receipt of the stock portfolio as a gift or via inheritence doesn't create taxable income to you. Did you inherit the stock or is the relative who gave it to you still alive?
My uncle is still alive, but I haven't received it just yet. It's a graduation gift and my father told me that he's simply putting my name in control of it or something. I have no idea how the transfer works. I'll literally be able to take control of the portfolio and trade/buy/sell as I please.
Quote:
Originally Posted by tj100 View Post
As long as the value at the time of the transfer is under the IRS gift threshold ($13,000), there is no tax implication at transfer. I would assume that your basis would be the value @ the time of the transfer, and you would have to pay capital gains on anything above its current value.
Okay, awesome. I'm pretty sure it's under $13K. Thanks guys!
post #9 of 33
+1 to the above, your basis in the stock is the FMV on date of the gift, IIRC. The tax incurred by selling the stock will depend on a variety of factors, including whether there are long-term or short-term capital gains, and to what extent you can offset gains with losses (either current or carried forward).
post #10 of 33
Thread Starter 
Thanks for all the insight guys. I'm starting to think maybe I should hold onto it.. I mean, it's lost half its value due to the recession, but I don't know what stocks have been invested in and whether it'll bound back up quickly. I do have some cash saved up so I'm not in immediate need of money, but I'm looking at two options: a) liquidate the portfolio immediately upon receipt b) keep it long-term (and deal with the hassle of tax implications and whatnot)
post #11 of 33
Cost basis is the cost basis at time of gift. I.e., if your grandmother gave you shares worth $50 that she purchased for $2 some years ago, your cost basis is also $2. If you sell, you will be taxed on the $48 gain. That goes whether she gave you she shares in kind, or gave you cash to buy them at $2/share when you were young.

It works the same way for losses. So if you're a US taxpayer, the in-built capital loss is a modest asset, as you might be able to use it to cancel out taxable gains elsewhere.

Any gift tax is a liability of the giver-- not your problem even if the gift is over $13K. In any case, the limit there is $13K/year, so if your relatives put in a little each year, they wouldn't have had to pay gift tax.

Since you're outside the US, any of this can be different for your precise situation.
post #12 of 33
Had to check the date of these posts... makes not a lot of sense that the portfolio is still at 50% of total contribution value, especially if contributions were made over an extended period. Someone really fucked up the allocation.
post #13 of 33
Thread Starter 
Quote:
Originally Posted by unjung View Post
Had to check the date of these posts... makes not a lot of sense that the portfolio is still at 50% of total contribution value, especially if contributions were made over an extended period. Someone really fucked up the allocation.

How so? I haven't received the portfolio yet so I'm not 100% sure on the exact details -- all I know is what my dad has told me.
post #14 of 33
The markets been doing pretty damn well as of late. I dont understand how it can still be 50% gone unless your relatives diversified extremely poorly.
post #15 of 33
Quote:
Originally Posted by Dashaansafin View Post
The markets been doing pretty damn well as of late. I dont understand how it can still be 50% gone unless your relatives diversified extremely poorly.

They thought Blockbuster was bound to regain a sizable marketshare

I wouldn't liquidate. You know more about this gift than anyone here, but I assume that you could have gotten a cash gift instead, so maybe its sort of implied that your uncle and relatives want you to hold onto the portfolio and maybe even play the market a bit?
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