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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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If I place, on Oct 15, 2012, say, 10M of a particular bond

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If I place, on Oct 15, 2012, say, 10M of a particular bond in a GRAT that I purchased for $9500 in Jul 2005, and was valued at $10100 on Oct 15, 2012, and it gets called at par ($10000) in Jan 2013, is it a long-term profit of $515 for the GRAT, or a $100 short-term loss for the GRAT? In short, what is the 'purchase date' and 'purchase price' for items in a GRAT? The original date and price, or the date and price it was placed in the GRAT?


Hi and welcome to Just Answer!
When any asset is transferred to the GRAT - there is no stepped up basis - only inherited assets are getting stepped up basis.
Generally the GRAT is set as a irrevocable trust - which is a separate legal and taxing entity - so trust's basis on the transferred asset is the lesser of donor's basis and the fair market value (FMV) of that asset at the time of transfer. Thus in your example - that is the lesser of $9500 and $10100 - which is $9500.
Also - because donor's basis is transferred - the donor's holding period is also transferred. Thus if the GRAT sells (or otherwise disposes) that asset above $9500 - that will be long term capital gain.
Interest paid by bond will be taxes separately as interest income.

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