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My aunt is 90 years young and has been living on dividends from stocks she has held for 40 years-approx $2500. She has no Social Security income. If we can get her into an assisted living residence she will need to sell her stocks and we do not have original values. Might the capital gains tax affect her?

Submitted: 41 days and 23 hours ago.

Category: Tax

Value: $30

Status: CLOSED

State/Country relating to question: New Jersey

Already Tried:
Planning to sell stocks. Wondering if splitting sales in different years is needed. She hasn't been paying tax.

Posted by bizmatters 41 days and 23 hours ago.

Answer

Dear XXXXXXXX,

Thank you for your question.

The sales of these stocks will be subject to capital gains treatment.

You need to do the best you can to establish a cost basis. If you are not able to, the IRS may assume a zero basis, which will boost any capital gains tax.

Accepted Answer

Hello XXXXXXXX,

Any gains that your aunt would have from the sale of these stocks would be treated as a capital gain, but depending on your aunt's total taxable income for the year, a portion of the gain will likely qualify to be taxed at zero percent.

You said that her only income is from dividends of approximately $2,500. Is that per year or per month? If she is a single taxpayer, then as long as you can keep her total income and total capital gains to no more than $45,000 for the year, her gains would all qualify to not be taxed at all, so you would possibly want to split the sales in different years to achieve this goal.

If you can tell me what her annual income is total from other sources, I can tell you how much of a gain she can absorb from stock sales and not pay any tax on those gains.

If this was helpful please press the Accept button.

Thank you XXXXXXXX

Accepts:
Expert:	Merlo
Pos. Feedback:	99.8 %
Answered:	10/12/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad

Posted by Merlo 41 days and 22 hours ago.

Info Request

Hello again XXXXXXXX,

Thank you for accepting my answer. I am getting ready to leave the forum for this evening and since I have not heard back from you as to what your aunt's actual income is from other sources, I just wanted to go ahead and give you some basic information so you will know how to deal with this.

Since your aunt is over the age of 65, she is allowed a standard deduction of $7,100 plus a personal allowance of $3,650. That will give her total deductions against her income of $10,750.

If her total income for the year (including any gains she has from the sale of stocks) comes to no more than $44,700, then when you apply her deductions of $10,750, this gives her taxable income of $33,950, which still keeps her in the 15% tax bracket. Any income she has over the $44,700 amount moves her to the next highest tax bracket of 25%.

As long as you can keep her total income at $44,700 or less for the year, including her gains from the sale of stocks, then her gains will be taxed at zero percent.

So as an example, if she is currently receiving dividend income of $30,000 per year, then she could have gains from the sale of stocks up to a total of $14,700 and pay no tax on those gains. If her income is lower than $30,000, then she would have room for more gains and you could sell more stocks.

This zero percent tax rate will apply for the 2009 and for 2010 tax years, an then it is scheduled to change. Because of that and depending on the total gains you think she may have, you may want to sell half of the stocks this year and then half of the stocks in 2010, so that you at least get the advantage of claiming the zero percent tax rate on a portion of these sales.

Thank you again for the accept, and let me know if you need more help.

41 days and 2 hours ago.

Reply

Thanks very much. Believe it or not she lives on $200 a month and pays half of it for Medicare Part B. You have helped me to understand what I must do to maximize her resources for upgrading her life. Thank you.

Posted by Merlo 41 days and 2 hours ago.

Info Request

Thank you XXXXXXXX, and let me know if you need more help with this.

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State/Country relating to question: New Jersey

Already Tried:
Planning to sell stocks. Wondering if splitting sales in different years is needed. She hasn't been paying tax.

Answer

Dear XXXXXXXX,

Thank you for your question.

The sales of these stocks will be subject to capital gains treatment.

You need to do the best you can to establish a cost basis. If you are not able to, the IRS may assume a zero basis, which will boost any capital gains tax.

Accepted Answer

Info Request

Reply

Thanks very much. Believe it or not she lives on $200 a month and pays half of it for Medicare Part B. You have helped me to understand what I must do to maximize her resources for upgrading her life. Thank you.

Info Request

Thank you XXXXXXXX, and let me know if you need more help with this.

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State/Country relating to question: New Jersey Already Tried: Planning to sell stocks. Wondering if splitting sales in different years is needed. She hasn't been paying tax.

Answer

Dear XXXXXXXX, Thank you for your question. The sales of these stocks will be subject to capital gains treatment. You need to do the best you can to establish a cost basis. If you are not able to, the IRS may assume a zero basis, which will boost any capital gains tax.

Accepted Answer

Info Request

Reply

Thanks very much. Believe it or not she lives on $200 a month and pays half of it for Medicare Part B. You have helped me to understand what I must do to maximize her resources for upgrading her life. Thank you.

Info Request

Thank you XXXXXXXX, and let me know if you need more help with this.

Related Tax Questions

State/Country relating to question: New Jersey

Already Tried:
Planning to sell stocks. Wondering if splitting sales in different years is needed. She hasn't been paying tax.

Dear XXXXXXXX,

Thank you for your question.

The sales of these stocks will be subject to capital gains treatment.

You need to do the best you can to establish a cost basis. If you are not able to, the IRS may assume a zero basis, which will boost any capital gains tax.