Giving stock shares to daughters, stock not traded.

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WormWood
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Giving stock shares to daughters, stock not traded.

Post by WormWood » Tue Sep 10, 2019 1:06 pm

Briefly, I have 5833 shares of a bank stock that is nearly worthless and not traded on any exchange.

I paid about $68,000 and current value may be around $5000. Maybe. Who knows? That’s just book value. It might be 1¢.

I would like to give it equally to my daughters so that I might harvest the tax loss.

The bank is actually still open and maybe the stock will appreciate in 20-30 years.

Can anyone advise me of the mechanics of transferring this stock to them for $0 or maybe $10?

I have the original certificates as well as a statement from the bank of my (sad and misguided) purchase price.

Thanks for any help!

puddingfox
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Re: Giving stock shares to daughters, stock not traded.

Post by puddingfox » Tue Sep 10, 2019 1:21 pm

Sell the shares and give them cash. If they cannot be sold, write them off, and give the kids cash. Either way, you get your tax loss and you are not sidling your trash on someone else.

miamivice
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Re: Giving stock shares to daughters, stock not traded.

Post by miamivice » Tue Sep 10, 2019 1:24 pm

For a gift, basis follows the stock. Your basis ($68,000) will be her basis, and if she sells at a loss, she gets the claim the loss on her taxes. You would not get the tax loss benefit by giving her the stock.

aristotelian
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Re: Giving stock shares to daughters, stock not traded.

Post by aristotelian » Tue Sep 10, 2019 1:28 pm

I don't see how giving them the stock harvests the loss. You would need to sell the stock to realize the loss. If you wanted to gift them the stock, you would then need to rebuy the stock after waiting 30 days. If you would not buy the stock with cash, that tells you something.

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WormWood
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Re: Giving stock shares to daughters, stock not traded.

Post by WormWood » Tue Sep 10, 2019 1:35 pm

Thanks folks for your kind replies.

I was hoping to sell them to daughters for $10 or whatever (if gifting doesn’t solve the problem), so that would be their basis. Then I could harvest my loss.

Would that not work?

Forgive me, I have never done anything like this.

Hopefully, in 30 years the bank may be doing well or even get acquired.

But, if I need to “write it off” because there is currently no market, how do you actually do that? Do you get the bank involved? A broker?

Sorry if this seems dumb but I really don’t know.

Thanks!

Jack FFR1846
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Re: Giving stock shares to daughters, stock not traded.

Post by Jack FFR1846 » Tue Sep 10, 2019 1:39 pm

Sure, if you had the stock certificates, you could sell them for $10. But how do they now put them into their names? Perhaps sending them in to Compushare. Probably not really cheap. And why would your daughters want these?

If you can find a way to sell them on the open market (again, maybe Compushare), then just do that and take your loss.
Bogle: Smart Beta is stupid

aristotelian
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Re: Giving stock shares to daughters, stock not traded.

Post by aristotelian » Tue Sep 10, 2019 1:42 pm

WormWood wrote:
Tue Sep 10, 2019 1:35 pm
Thanks folks for your kind replies.

I was hoping to sell them to daughters for $10 or whatever (if gifting doesn’t solve the problem), so that would be their basis. Then I could harvest my loss.

Would that not work?

Forgive me, I have never done anything like this.

Hopefully, in 30 years the bank may be doing well or even get acquired.

But, if I need to “write it off” because there is currently no market, how do you actually do that? Do you get the bank involved? A broker?

Sorry if this seems dumb but I really don’t know.

Thanks!
I could be wrong, but I don't think you can directly sell it to them. In any case, why would you want to gift them a nearly worthless stock?

To harvest a loss, you just sell the stock, then report the loss on your tax return. Here is a good step by step:
https://www.physicianonfire.com/tax-los ... =198528535

Have these shares been held a long time? If so, they may be "uncovered" and you will need to calculate the basis yourself, which can be a challenge.

psteinx
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Re: Giving stock shares to daughters, stock not traded.

Post by psteinx » Tue Sep 10, 2019 1:44 pm

There is a procedure for dealing with worthless stock - see publication 550 I think.

If you think there may be some marginal value - a penny a share or whatever, then perhaps contact the bank. It's my understanding that small, thinly traded bank stocks may be traded by arrangement with the bank itself - the bank president may have a list of folks interested in acquiring shares, should they be available.

I do not recommend trying to sell them to your daughter's for $10 - it feels like something that is of questionable legality/ethics and asking for trouble. But I'm neither a lawyer nor an accountant - you could check with one for more information. That said, an arm's length transaction with a willing buyer seems like the best way to go. If the bank is still in operation, I suspect the shares are far from worthless, even if they're worth a lot less than what you paid for them.

miamivice
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Re: Giving stock shares to daughters, stock not traded.

Post by miamivice » Tue Sep 10, 2019 1:51 pm

The stock isn't worthless. The OP stated that the stock he owns is worth about $5000.

If he sells them for $10, he is gifting his daughter $4990.

miamivice
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Re: Giving stock shares to daughters, stock not traded.

Post by miamivice » Tue Sep 10, 2019 1:52 pm

aristotelian wrote:
Tue Sep 10, 2019 1:42 pm
Have these shares been held a long time? If so, they may be "uncovered" and you will need to calculate the basis yourself, which can be a challenge.
He knows the basis, it's $68,000 as stated in the first post.

Chip
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Re: Giving stock shares to daughters, stock not traded.

Post by Chip » Tue Sep 10, 2019 1:52 pm

miamivice wrote:
Tue Sep 10, 2019 1:24 pm
For a gift, basis follows the stock. Your basis ($68,000) will be her basis, and if she sells at a loss, she gets the claim the loss on her taxes. You would not get the tax loss benefit by giving her the stock.
This isn't correct in the case where the FMV of the gift is less than the donor's basis. In that case, if the donee sells for a loss, donee's basis is the FMV of the gift at the time it was gifted.

https://www.irs.gov/faqs/capital-gains- ... f-home-etc

Because of this rule, a gift to the daughter will cause the loss to be lost. :)

OP, contact your broker and see if they will buy the stock from you for a nominal amount. You can't write off the stock as "worthless" unless the stock has been cancelled. That usually only happens upon emergence from bankruptcy or a full liquidation.

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WormWood
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Re: Giving stock shares to daughters, stock not traded.

Post by WormWood » Tue Sep 10, 2019 1:53 pm

Re: Why give nearly worthless stick to daughters?

1. It is free for them. I’d give them the ten spot.

2. The bank is still in business and the stock may slowly improve over 20-30 years.


It appears I need to look into Compushare.

Thanks folks!

Topic Author
WormWood
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Re: Giving stock shares to daughters, stock not traded.

Post by WormWood » Tue Sep 10, 2019 1:57 pm

Ok, thanks for all the advice.

It appears I should see if anyone at the bank wants to buy them for whatever they might offer.

If that doesn’t work, Compushare will be next step.

I do appreciate being steered in the right direction.

aristotelian
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Re: Giving stock shares to daughters, stock not traded.

Post by aristotelian » Tue Sep 10, 2019 1:58 pm

miamivice wrote:
Tue Sep 10, 2019 1:52 pm
aristotelian wrote:
Tue Sep 10, 2019 1:42 pm
Have these shares been held a long time? If so, they may be "uncovered" and you will need to calculate the basis yourself, which can be a challenge.
He knows the basis, it's $68,000 as stated in the first post.
He said "about". The point being, he will have to calculate it himself, it won't be as simple as the PhysicianonFire example.

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WormWood
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Re: Giving stock shares to daughters, stock not traded.

Post by WormWood » Tue Sep 10, 2019 2:05 pm

I have the exact number.

$68328.00 is what I paid according to bank’s document they sent me this morning.

not4me
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Re: Giving stock shares to daughters, stock not traded.

Post by not4me » Tue Sep 10, 2019 2:07 pm

WormWood wrote:
Tue Sep 10, 2019 1:57 pm
Ok, thanks for all the advice.

It appears I should see if anyone at the bank wants to buy them for whatever they might offer.

If that doesn’t work, Compushare will be next step.

I do appreciate being steered in the right direction.
Is Compushare the transfer agent? If so, definitely contact them. If not, contact the bank. It may be they are the ones that facilitate sells when they occur. It sounds as if there isn't an active market. They may have a list of those interested in buying/selling. But they might tell you when the last sale was & for how much. Even if you have the paper certificates & a broker isn't involved, you may be able to try that route. Some brokers as a courtesy will buy "worthless" stocks for a small fee -- might be worth opening an account just for that if needed. But since it isn't really worthless, they may not. Your best bet is likely that a larger bank take them over.

RetiredArtist
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Re: Giving stock shares to daughters, stock not traded.

Post by RetiredArtist » Tue Sep 10, 2019 2:20 pm

Chip wrote:
Tue Sep 10, 2019 1:52 pm
miamivice wrote:
Tue Sep 10, 2019 1:24 pm
For a gift, basis follows the stock. Your basis ($68,000) will be her basis, and if she sells at a loss, she gets the claim the loss on her taxes. You would not get the tax loss benefit by giving her the stock.
This isn't correct in the case where the FMV of the gift is less than the donor's basis. In that case, if the donee sells for a loss, donee's basis is the FMV of the gift at the time it was gifted.

https://www.irs.gov/faqs/capital-gains- ... f-home-etc

Because of this rule, a gift to the daughter will cause the loss to be lost. :)

OP, contact your broker and see if they will buy the stock from you for a nominal amount. You can't write off the stock as "worthless" unless the stock has been cancelled. That usually only happens upon emergence from bankruptcy or a full liquidation.
From the IRS link: To figure out the basis of property you receive as a gift, you must know three amounts:

The adjusted cost basis to the donor just before the donor made the gift to you.
The fair market value (FMV) at the time the donor made the gift.
The amount of any gift tax paid on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.


Chip, are you saying in the case of a gifted stock that shows a capital loss, neither the donor nor the recipient can claim the loss?
What about gifting stock purchased for $10/share, with a current market value $50/share? Doesn't the recipient have to use the donor's original $10/share cost basis?
It seems illogical that in the case of a gift, capital gain travels with the gift, but capital loss goes away.

increment
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Re: Giving stock shares to daughters, stock not traded.

Post by increment » Tue Sep 10, 2019 2:26 pm

RetiredArtist wrote:
Tue Sep 10, 2019 2:20 pm
It seems illogical that in the case of a gift, capital gain travels with the gift, but capital loss goes away.
You may find it illogical, but it is trivial to ensure that the capital loss does not go away. (Giver realizes capital loss, then gives cash with instructions to repurchase the asset.)

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Stinky
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Re: Giving stock shares to daughters, stock not traded.

Post by Stinky » Tue Sep 10, 2019 2:31 pm

WormWood wrote:
Tue Sep 10, 2019 1:53 pm
Re: Why give nearly worthless stick to daughters?

1. It is free for them. I’d give them the ten spot.

2. The bank is still in business and the stock may slowly improve over 20-30 years.
I'm not understanding your seeming focus on this particular "nearly worthless stock".

Is this a place that anybody in your family has worked? If so, I can understand the sentimental value of passing the stock on to my daughters.

But, if there's no personal tie to the bank itself, I see no particular reason to own the stock of this bank. Your comment "the stock may slowly improve over 20-30 years" can be made of any single stock, not just the stock of the bank.

If I were in your shoes, I'd sell the stock for what it's worth, take the tax loss, and separately give my daughters whatever cash I want to give to them.
It's a GREAT day to be alive - Travis Tritt

Chip
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Re: Giving stock shares to daughters, stock not traded.

Post by Chip » Tue Sep 10, 2019 3:19 pm

RetiredArtist wrote:
Tue Sep 10, 2019 2:20 pm
Chip, are you saying in the case of a gifted stock that shows a capital loss, neither the donor nor the recipient can claim the loss?
Yes, unless the donee sells the stock for less than the FMV at the date of the gift. And then it's only the difference between that much lower number and the sale proceeds. The only way for anyone to claim the full loss is for the donor to sell the stock, then gift the proceeds, as mentioned by others.
What about gifting stock purchased for $10/share, with a current market value $50/share? Doesn't the recipient have to use the donor's original $10/share cost basis?
The determinant of which basis (donor cost or FMV) is the comparison of each of those values to the price at which the asset is sold. In this case, IF the donee sold at $50, the basis would be $10/share.
It seems illogical that in the case of a gift, capital gain travels with the gift, but capital loss goes away.
Sorry to be glib, but if you're looking for logic the tax code isn't the place to start looking. This is pretty much a classic "Heads I win, tails you lose" feature of the tax code.

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Re: Giving stock shares to daughters, stock not traded.

Post by HawkeyePierce » Tue Sep 10, 2019 3:23 pm

Aside from the mechanics of the whole thing, do your daughters really want illiquid shares that can’t be easily traded? That sounds less like a gift and more like a burden.

If you want to give them shares of something, sell these, take the loss yourself and buy them shares of VTSAX or whatever.

psteinx
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Re: Giving stock shares to daughters, stock not traded.

Post by psteinx » Tue Sep 10, 2019 4:00 pm

WormWood wrote:
Tue Sep 10, 2019 1:53 pm
Re: Why give nearly worthless stick to daughters?

1. It is free for them. I’d give them the ten spot.

2. The bank is still in business and the stock may slowly improve over 20-30 years.
But the issue is, if the stock is worth, say, $5K (and you could actually sell it for that amount), then it's a bad gift to make to your daughters, unless perhaps you have unusual insight that the stock will massively outperform the market going forward.

Option A - Sell the stock for $5K
* You get $5K cash
* You get a tax deduction of about ($68K-$5K) = $63K. You may not be able to use the full amount of that this year, but then again you may. If you can't use it, it'll likely carry over for many years to come (and I think you can use $3K of it against ordinary income if you don't have offsetting gains).

So, net value, assuming your tax rate (fed/state/local) is about 20% is about $5K + (63K*20%)=$12.6K = $17.6K. There's a lot of fuzziness in this - would the loss offset long-term cap gains, short-term cap gains, or ordinary income, how many years would it take to be used up, etc. But $17.6K is a reasonable ballpark.

Option B - Sell the stock to your kid for $10
* Your kid gets $5K in stock
* You get nothing, and lose the deduction
* If the stock really does soar, the kid's cap gains are sheltered by the high basis, or the kid could sell it for $5K years down the line or whatever and realize the capital loss. But that seems far less valuable than a ~$63K capital loss you could realize now.
EDIT - Oops, other posters are claiming that the above-market basis would not pass on to the daughter. I'm not an expert - I don't know. But Option B was a bad idea in my opinion even if the high basis passed on and is an even worse idea if it does not.
Last edited by psteinx on Thu Sep 12, 2019 9:10 am, edited 2 times in total.

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LilyFleur
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Re: Giving stock shares to daughters, stock not traded.

Post by LilyFleur » Tue Sep 10, 2019 5:12 pm

psteinx wrote:
Tue Sep 10, 2019 4:00 pm
WormWood wrote:
Tue Sep 10, 2019 1:53 pm
Re: Why give nearly worthless stick to daughters?

1. It is free for them. I’d give them the ten spot.

2. The bank is still in business and the stock may slowly improve over 20-30 years.
But the issue is, if the stock is worth, say, $5K (and you could actually sell it for that amount), then it's a bad gift to make to your daughters, unless perhaps you have unusual insight that the stock will massively outperform the market going forward.

Option A - Sell the stock for $5K
* You get $5K cash
* You get a tax deduction of about ($68K-$5K) = $63K. You may not be able to use the full value of that this year, but then again you may. If you can't use it, it'll likely carry over for many years to come (and I think you can use $3K of it against ordinary income if you don't have offsetting gains).

So, net value, assuming your tax rate (fed/state/local) is about 20% is about $5K + (63K*20%)=$12.6K = $17.6K. There's a lot of fuzziness in this - would the loss offset long-term cap gains, short-term cap gains, or ordinary income, how many years would it take to be used up, etc. But $17.6K is a reasonable ballpark.

Option B - Sell the stock to your kid for $10
* Your kid gets $5K in stock
* You get nothing, and lose the deduction
* If the stock really does soar, the kid's cap gains are sheltered by the high basis, or the kid could sell it for $5K years down the line or whatever and realize the capital loss. But that seems far less valuable than a ~$63K capital loss you could realize now.
Option A. Then write a check to each daughter for $5,000. It's clean, it's easy for the recipient. That, in my opinion, is a true gift.

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Re: Giving stock shares to daughters, stock not traded.

Post by Gill » Tue Sep 10, 2019 6:02 pm

miamivice wrote:
Tue Sep 10, 2019 1:24 pm
For a gift, basis follows the stock. Your basis ($68,000) will be her basis, and if she sells at a loss, she gets the claim the loss on her taxes. You would not get the tax loss benefit by giving her the stock.
Totally wrong! As pointed out above, the tax law is designed so you can’t give away a loss.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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WormWood
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Re: Giving stock shares to daughters, stock not traded.

Post by WormWood » Thu Sep 12, 2019 5:25 am

Update!

I contacted the bank and one of the officers said he would buy them all for book value.

So 5833 shares at $0.86@.

So, better than a sharp stick in the eye.

Problem solved!

Thanks for all your kind comments/advice.

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