How Do You Calculate Capital Gains Tax on a Gifted Asset?

The recipient of the gift does not have to pay any taxes on the gift until the recipient sells it. At that time, the recipient may be responsible for capital gains taxes that may have been incurred.

How this works is: say you gift stock to your daughter that you paid $5,000 for at the time you purchased it. At the time your daughter sells the stock, the stock is worth $15,000. Your daughter only has to pay tax on the difference between what you bought the stock for and what she sold it for, which is $10,000.

You do not get a step-up in basis when you get a gift – you have to carry over the basis from the person who gifted the asset. But you do get a step up in basis when you receive an inheritance. So say someone bought a house 20 years ago, and it costs 5 times as much now. It would make more sense to inherit it then to receive it by gift.

However, in some cases it may make sense to gift your assets while you are alive is a great way to reduce your estate taxes later. This is true of assets that are purchased recently and have no accumulated any gain and that are expected to go up in value.

Another way is to save taxes is to set up a trust and transfer the assets to the trust for the benefit of your beneficiaries. Also, assets placed in a trust are exempt from probate in New York. This will save your family additional time and money because the trust assets will automatically transfer to your beneficiaries in accordance with the trust agreement.

Since most people are not familiar with the gift tax laws, they generally seek the advice of a New York probate and estate attorney to assist them with the best way to structure their gifts. A New York probate and estate attorney also can be of assistance with other probate and estate matters.

If you wish to speak to a New York City estate attorney, call the Law Offices of Albert Goodwin at (212) 233-1233.