Advice for recently gifted stock

[JohnTh]

Hi Boggleheads,
I was hoping to get advice as what to do with this recently gifted stock with value of $170,000. Should I hang on to some or all or convert to maybe VTI.
Some of the cost basis is quite high. My age is 53.
Thanks.

[retiredjg]

It depends on what you want in your portfolio and what the rest of your portfolio looks like. And your current tax situation.

If you are asking if there are "good" stocks and whether you should keep them, nobody knows. A common suggestion is to limit individual stocks to 10% or less of your portfolio.

If this were gifted to me, I would sell everything at a loss and sell things that have a gain up to the amount equal to that loss. Then, re-evaluate what to keep.

You said the "cost basis" is quite high....I think you meant the capital gains were high. And that would be a reason not to do a wholesale liquidation for many people. For others, it would not matter.

[livesoft]

I'd gift the shares with the largest unrealized capital gains to my Donor Advised Fund (DAF).
I'd sell all the shares with unrealized losses in order to create realized losses. Note that shares with losses that are gifted to one get an adjusted cost basis that may surprise everyone, so make sure we all know about the adjusted cost basis.

I'd sell enough shares with gains to offset the realized losses.

And then I'd sell shares with gains to offset my realized losses that I have been carrying over for years and years.

If there were any shares leftover, then I'd give them away to somebody more deserving ... probably my DAF.

[FiveK]

...this recently gifted stock....

Just checking: did you receive this as a gift or as an inheritance?

If an inheritance, the basis is the value they had on the day the original owner died.

If a gift, your basis remains the same as the giver's basis so the giver would have to provide that.

[retiredjg]

Note that shares with losses that are gifted to one get an adjusted cost basis that may surprise everyone, so make sure we all know about the adjusted cost basis.

Well, I'm surprised already and don't even know the answer! Care to enlighten us?

[BogleTaxPro]

Note that shares with losses that are gifted to one get an adjusted cost basis that may surprise everyone, so make sure we all know about the adjusted cost basis.

Well, I'm surprised already and don't even know the answer! Care to enlighten us?

It's not well-known, but here's the actual IRS link and quote: https://www.irs.gov/faqs/capital-gains- ... f-home-etc


Question
What is the basis of property received as a gift?
Answer

To figure out the basis of property received as a gift, you must know three amounts:

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

If the FMV of the property at the time the donor made the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

Your adjusted basis for figuring a gain is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
Your adjusted basis for figuring a loss is the FMV of the property at the time the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.
Note: If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV of the property at the time the donor made the gift is equal to or greater than the donor's adjusted basis, your adjusted basis is the donor's adjusted basis just before the donor made the gift, increased or decreased by any required adjustments to basis while you held the property.

If the donor paid a gift tax on the gift and made the gift after 1976, increase your basis by the gift tax paid on the net increase in value. To figure out the net increase in value or for other information on gifts received before 1977, see Publication 551, Basis of Assets.

[retiredjg]

Oh. Ugh. Not even sure what it all means, but it is not as simple as I thought.

Thanks.

[Valuethinker]

It depends on what you want in your portfolio and what the rest of your portfolio looks like. And your current tax situation.

If you are asking if there are "good" stocks and whether you should keep them, nobody knows. A common suggestion is to limit individual stocks to 10% or less of your portfolio.

If this were gifted to me, I would sell everything at a loss and sell things that have a gain up to the amount equal to that loss. Then, re-evaluate what to keep.

You said the "cost basis" is quite high....I think you meant the capital gains were high. And that would be a reason not to do a wholesale liquidation for many people. For others, it would not matter.

Agree re harvesting any tax losses. Use proceeds to invest in Vanguard Total Market (or equivalent).

There's no reason to hold onto individual stocks *except* to delay taxable realisations.

[montanagirl]

Oh. Ugh. Not even sure what it all means, but it is not as simple as I thought.

Thanks.

You get the giver's adjusted basis.

And whoever gave it needs to file a gift tax return, and if they have to pay tax it needs to be added proportionately to your basis. So each holding will have some of the gift tax added to basis.

That's assuming the gifts fall outside the $12m estate tax exclusion...

[grabiner]

Oh. Ugh. Not even sure what it all means, but it is not as simple as I thought.

Simple explanation: It is not allowed to gift a capital loss to someone else. Thus, if you receive a gift that would have had a capital loss if the giver sold it, you cannot deduct that loss, but otherwise the basis is retained. Thus:

If you sell for more than the giver's basis, you have a capital gain of the difference.
If you sell for less than the giver's basis but more than the market value on the date of gift, you have no capital gain or loss.
If you sell for less than the market value on the date of gift, you have a capital loss, but only for the decline since the gift.

Thus, if a stock is a reasonable investment, and its current price is lower than the giver's basis, it is likely worth holding, since gains until it gets back to the giver's basis will be tax-free.

[123]

I would turn off any automatic reinvestment of dividends and direct further dividends received towards your desired investments.

I would develop a plan to liquidate positions to simplify. That depends on your other holdings and tax situation.

[retiredjg]

Thanks David. That is much clearer.