UTMA - selling shares - tax treatment

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golfdude
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Joined: Mon Jun 29, 2020 9:27 am

UTMA - selling shares - tax treatment

Post by golfdude » Mon Jun 29, 2020 9:55 am

Hi everyone, thank you in advance for any help you can provide:

I've done some searching on the forum but couldn't find anything on this specific issue. My parents set up a UTMA account for me when I was young which held equity shares. Last year, I transferred the shares to my personal online brokerage account and sold them immediately upon transfer. I did not incur a tax event upon transferring the shares. However, it seems I am incurring a tax event for selling the shares. I am currently in my early 30's and had taxable income for 2019.

Is it correct that selling shares gifted to an individual via UTMA are taxed after the individual is of age to control the account? For full disclosure, I'm using TurboTax which is giving the tax event.

I also found this which seems to confirm the tax event but wanted to ask you all to double check:
https://www.troweprice.com/personal-inv ... utmas.html

"Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate."

DIFAR31
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Re: UTMA - selling shares - tax treatment

Post by DIFAR31 » Mon Jun 29, 2020 11:50 am

golfdude wrote:
Mon Jun 29, 2020 9:55 am
Is it correct that selling shares gifted to an individual via UTMA are taxed after the individual is of age to control the account? For full disclosure, I'm using TurboTax which is giving the tax event.
Gains upon sale are taxed to the account owner/beneficiary, no matter what that person's age is at the time of sale. How the gains are taxed can depend on the age of the owner/beneficiary (kiddie tax implications).

Topic Author
golfdude
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Re: UTMA - selling shares - tax treatment

Post by golfdude » Mon Jun 29, 2020 1:19 pm

Thank you very much! Appreciate the distinction between how tax is applied vs whether its applied

livesoft
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Re: UTMA - selling shares - tax treatment

Post by livesoft » Mon Jun 29, 2020 1:30 pm

One needs to understand what "Cost Basis" means and what the "Cost Basis" for the shares that you sold actually is. TRowePrice may have given you the actual cost basis for the shares you sold on the 1099-B that they sent you. You got a 1099-B, right? And you also may have income from the shares as shown on a 1099-DIV that TRowePrice sent you that you will need to report on your tax return. Often the 1099-B and 1099-DIV come on a "consolidated 1099" from one's financial firm.

I suspect you may be just using TurboTax with these forms and not reading the IRS instructions. The IRS has the helpful Publication 550 which has some information.
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simas
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Re: UTMA - selling shares - tax treatment

Post by simas » Mon Jun 29, 2020 5:14 pm

golfdude wrote:
Mon Jun 29, 2020 1:19 pm
Thank you very much! Appreciate the distinction between how tax is applied vs whether its applied
livesoft covered it above - read the forms that were sent to you by the brokerage which they are required to do by law. come back when you have questions, sometimes , for shares from the time before cost basis rules were formalized (thing late 2000s) brokerage may not know your cost basis and you will have to track it down to enter.

sell price - cost basis likely ltcg (long term capital gains). LTCG rates depend on your filling status (Single, MFJ, etc) and income and are easily googleble. TurboTax would easily handle it for you if you give it the information from the brokerage.

lstone19
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Re: UTMA - selling shares - tax treatment

Post by lstone19 » Mon Jun 29, 2020 6:09 pm

The posts above mostly covered it but as it sounds like these shares were owned for a long-time and therefore aren't "covered securities" and therefore the brokerage may not be reporting the correct basis. You need to look at the Form(s) 8949 TT is generating. If page 2 has box E checked, then a basis adjustment may be needed. Below that, see what's in column e (Cost or other basis). If it's blank, you have an issue. Even if it's not blank, it may be wrong (some brokerages do report basis even though they don't have to so even if Box E is checked, the basis may be correct. If basis wasn't reported, it may be in the supplemental information included with the 1099-B.

You should only be paying taxes on the gain since your parents gave you the stock, not the entire value of it. Reading between the lines of your post, it sounds like you might have been thinking you needed to pay tax on the value of the UTMA on the day when you put it in your own name.

livesoft
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Re: UTMA - selling shares - tax treatment

Post by livesoft » Mon Jun 29, 2020 10:49 pm

lstone19 wrote:
Mon Jun 29, 2020 6:09 pm
You should only be paying taxes on the gain since your parents gave you the stock, not the entire value of it. Reading between the lines of your post, it sounds like you might have been thinking you needed to pay tax on the value of the UTMA on the day when you put it in your own name.
The phrase "since your parents gave you the stock" above is problematic because it can be read more than one way. :)

If parents gave the child the stock, the parents' cost basis transfers to the child.
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lstone19
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Re: UTMA - selling shares - tax treatment

Post by lstone19 » Tue Jun 30, 2020 8:30 pm

livesoft wrote:
Mon Jun 29, 2020 10:49 pm
lstone19 wrote:
Mon Jun 29, 2020 6:09 pm
You should only be paying taxes on the gain since your parents gave you the stock, not the entire value of it. Reading between the lines of your post, it sounds like you might have been thinking you needed to pay tax on the value of the UTMA on the day when you put it in your own name.
The phrase "since your parents gave you the stock" above is problematic because it can be read more than one way. :)

If parents gave the child the stock, the parents' cost basis transfers to the child.
Excellent point. Correct my statement to "You should only be paying taxes on the gain since your parents originally purchased the stock, not the entire value of it." Whether the parents bought the stock and then gave it to your UTMA or put cash in the UTMA and then bought stock, the basis is whatever was originally paid for it.

the way
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Re: UTMA - selling shares - tax treatment

Post by the way » Tue Jun 30, 2020 9:03 pm

livesoft wrote:
Mon Jun 29, 2020 10:49 pm
lstone19 wrote:
Mon Jun 29, 2020 6:09 pm
You should only be paying taxes on the gain since your parents gave you the stock, not the entire value of it. Reading between the lines of your post, it sounds like you might have been thinking you needed to pay tax on the value of the UTMA on the day when you put it in your own name.
The phrase "since your parents gave you the stock" above is problematic because it can be read more than one way. :)

If parents gave the child the stock, the parents' cost basis transfers to the child.
Not always. If the parents bought some stock and the price had dropped below their basis when they gifted it, and then the stock was sold for even lower than that, then the basis is the FMV on the gifting date, not the parents' cost basis. (and even more strange, if it was sold for more than the FMV but less than the original basis, then there is no gain or loss on the sale at all).

Basically, you can't give away capital losses.

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