1. And... we're back. You'll notice that all of your images are back as well, as are our beloved emoticons, including the infamous :foo: We have also worked with our server folks and developers to fix the issues that were slowing down the site.

    There is still work to be done - the images in existing sigs are not yet linked, for example, and we are working on a way to get the images to load faster - which will improve the performance of the site, especially on the pages with a ton of images, and we will continue to work diligently on that and keep you updated.

    Cheers,

    Fok on behalf of the entire Styleforum team
    Dismiss Notice

How does taxation on stock portfolios work?

Discussion in 'Business, Careers & Education' started by GreenFrog, May 23, 2011.

  1. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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!
     
  2. Cognacad

    Cognacad Senior member

    Messages:
    524
    Joined:
    Aug 30, 2009
    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...
     
  3. Nicola

    Nicola Senior member

    Messages:
    2,952
    Joined:
    Feb 1, 2009
    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.
     
  4. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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.
     
  5. Nicola

    Nicola Senior member

    Messages:
    2,952
    Joined:
    Feb 1, 2009
    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 -)
     
  6. pistolero

    pistolero Senior member

    Messages:
    479
    Joined:
    Nov 7, 2009
    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?
     
  7. tj100

    tj100 Senior member

    Messages:
    655
    Joined:
    May 4, 2009
    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.
     
  8. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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.
    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!
     
  9. RedLantern

    RedLantern Senior member

    Messages:
    3,277
    Joined:
    Apr 6, 2008
    Location:
    The Brooklyn of Seattle
    +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).
     
  10. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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)
     
  11. Concordia

    Concordia Senior member Dubiously Honored

    Messages:
    5,780
    Joined:
    Oct 6, 2004
    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.
     
  12. unjung

    unjung Senior member

    Messages:
    6,544
    Joined:
    Sep 30, 2008
    Location:
    The beach
    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.
     
  13. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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.
     
  14. Dashaansafin

    Dashaansafin Senior member

    Messages:
    1,850
    Joined:
    Oct 29, 2008
    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.
     
  15. bringusingoodale

    bringusingoodale Senior member

    Messages:
    1,491
    Joined:
    Jun 25, 2010
    Location:
    Disputed Zone
    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[​IMG]

    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?
     
  16. unjung

    unjung Senior member

    Messages:
    6,544
    Joined:
    Sep 30, 2008
    Location:
    The beach
    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.

    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.

    Exactly. Markets are basically back to where they were before the drop. Assuming your uncle put the money in over, say, the last ten years, on a regular basis, you should be up, not down. He must have bought some really stupid shit.

    I am not a manager but asset allocation is a massively important aspect of portfolio management. The rules most even low-level retail advisors follow would have you up right now.

    They thought Blockbuster was bound to regain a sizable marketshare[​IMG]

    [​IMG]
     
  17. GreenFrog

    GreenFrog Senior member

    Messages:
    14,235
    Joined:
    Oct 20, 2008
    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.
    As far as I'm aware, some of the stocks include disney and LA gear shoes. I was obsessed with those shoes as a kid, which is why he invested in those, I guess. I really don't know what else the portfolio contains, but those are two of them. I'm going to guess that it's just very poorly diversified, as in he chose a couple of stocks, and simply kept purchasing more and more shares of each as time went on. I don't think he actively managed it, beyond contributing to it each year.
    They thought Blockbuster was bound to regain a sizable marketshare[​IMG] 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?
    Possibly. My dad told me this same exact thing. I'm still unsure as to what I'm going to do, seeing as I don't even have control over it yet.. but I will definitely take a look at it once I get it and see what my options are. I just watched limitless so I kind of have an investing tick lol. edit: just read that la gear filed for bankruptcy in 1998 lol
     
  18. NAMOR

    NAMOR Senior member

    Messages:
    20,575
    Joined:
    Sep 3, 2010
    Location:
    Heavenly & Northstar
    As far as I'm aware, some of the stocks include disney and LA gear shoes. I was obsessed with those shoes as a kid, which is why he invested in those, I guess.
    I own Disney. Their share prices have gone up almost 100%, so up $22 in the last two years. Depending on how much of the portfolio is made up of Disney, you should be in decent shape
     
  19. Nicola

    Nicola Senior member

    Messages:
    2,952
    Joined:
    Feb 1, 2009
    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.

    Really?

    GM
    GE
    C
    JNJ,MRK,PFE
    T,VZ
    INTC,MSFT

    10 of the most widely held stocks by small investors. Small investors who tend to buy what is hot at the moment. The first eight would have been a fairly safe widows and orphans portfolio. The last two market leaders. All Dow30 stocks.

    So if bought at the highs.

    GM down 100%
    GE down over 60%
    C down over 90%
    Drug stocks all down heavily
    Phone stocks all down heavily
    So are the other two.

    Hell DIS is down what 10% from it's all time high?

    The guy had 20K. I think you'll find many small investors who are far far from their all time highs.

    NB I didn't even include WaMu,Lehman,Wachovia or any of the other problems.
     
  20. Dashaansafin

    Dashaansafin Senior member

    Messages:
    1,850
    Joined:
    Oct 29, 2008
    Really? GM GE C JNJ,MRK,PFE T,VZ INTC,MSFT 10 of the most widely held stocks by small investors. Small investors who tend to buy what is hot at the moment. The first eight would have been a fairly safe widows and orphans portfolio. The last two market leaders. All Dow30 stocks. So if bought at the highs. GM down 100% GE down over 60% C down over 90% Drug stocks all down heavily Phone stocks all down heavily So are the other two. Hell DIS is down what 10% from it's all time high? The guy had 20K. I think you'll find many small investors who are far far from their all time highs. NB I didn't even include WaMu,Lehman,Wachovia or any of the other problems.
    Small investors are retards at diversification and dont understand how/what to invest in. They watch Mad Money or search "Top 10 stocks to buy" on Google or something. If you look at the overall market its back to pre recession levels. If he had just simply bought 1 ETF of the Dow/S&P he would be fine. I dont know why anyone would invest in GM, GE, C, Drug stocks, Phone stocks and call that diversification.
     

Share This Page

Styleforum is proudly sponsored by