Mix assets to avoid capital gains taxes
A series of strategies for tax-savvy investors. Contents.
You can transfer assets appreciated from this person to this person, in order to reduce or eliminate the capital gain tax. You could, for example, transfer a winning stock position to your daughter to help her pay off her college loans or buy a house. It recovers your cost base. If she files a joint return in 2021 and her taxable income (including the gain you transfer) is less than $ 80,800, her capital gain tax rate is zero.
As always with taxes, delicate rules surround a gift like this. The share must be held for more than one year to benefit from the advantageous rates on capital gains. Another danger is the children’s tax, which returns investment income to the parents’ tax return. There are various conditions under which the children’s tax does not apply; a safe haven is that the child is at least 24 years old at the end of the year in which the stock is sold.
Also think about taxes on donations. The federal gift tax has an exclusion of $ 15,000 per year. This gift can be increased to $ 60,000 if you fill out paperwork and divide the gift between you and your spouse on one side and your child and spouse on the other. To complete this juggling act, you need to file two tax returns / estate returns from Form 709.
Tactic 2: You give your valued Tesla shares to your 94-year-old father in the hope that they will be returned to you. Upon death, a “step-up” shelters the capital gain from tax. Note: If the oldest child dies within the year, you forfeit the increase.
One caveat is that Congress is considering repealing the step-up rule. The law change might only affect very wealthy people or everyone.