US tax rules for gift from parent to adult child?

[Terr]

Correction (past edit window) to my post: not $5.25M each. $5.25M total.

[Machine_Elf]

@Alley_Dweller

In order to save yourself a massive headache when you go to sell the stock, get a copy of your parents’ records relating to the original purchase so you can determine their basis, which you will need in order to determine your taxable profit/loss when you sell. Also, get and keep a copy of a brokerage statement or other document that shows the value of the gift on the date of transfer.

Getting a brokerage statement shouldn’t be too hard. I can probably also get a date of original purchase by my parents, though I’m not sure what sort of document would satisfy the IRS if an audit happened.

And, incidentally, if the value of the shares has gone down since your parents purchased them, it is very foolish from a tax perspective to give them as a gift. Neither one of you will benefit from the decrease. If this is the case, it would be far wiser for your parents to sell the shares, claim the tax loss, and give you the money to buy your own shares.

Not likely to be a problem: my dad tells me this is one of his best performing funds.

@Si Amigo

It would help if the OP mentioned the amount of the transfer I suppose.

The amount in question is $10,000.

[Alley_Dweller]

@Machine_Elf

Getting a brokerage statement shouldn’t be too hard. I can probably also get a date of original purchase by my parents, though I’m not sure what sort of document would satisfy the IRS if an audit happened.

Let me clarify: You need not only the date it was purchased but the amount it was purchased for. And if your parents had the dividends automatically reinvested or the shares did something funky like a return of capital, the details of each such transaction would also be needed to accurately determine the tax due on sale. That would be the same documentation your parents would need if they sold it themselves.

If it was purchased in a typical brokerage account, that would be a broker’s statements. If it was purchased from a private party, a cancelled check or bank statement. If it was bought directly from a mutual fund company, they probably have some record (unless it was REALLY long ago) which may disappear when your parents close their account, so if your parents didn’t keep a copy of their old statements, it would be wise to contact the mutual fund company (or broker) to see if they can look up the data for you and send you something before your parents close their account.

I realize it seems boorish to make demands for paperwork when someone is trying to do you a favor and give you a present. Unfortunately, you need that sort of documentation. As I said, it’s no different than the documents your parents would have needed if they sold the shares themselves. Try to approach the topic in an apologetic way and blame the IRS. In any case, the worst that can happen is you’ll pay some unnecessary taxes if you get audited and can’t back up your basis claims.