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jgordosea
jgordosea, Enrolled Agent
Category: Capital Gains and Losses
Satisfied Customers: 3161
Experience:  As an Enrolled Agent you can be ensured of my competence in income tax matters.
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Ok, I acquired s corp stock from my parents. It was a gift.

Customer Question

Ok, I acquired s corp stock from my parents. It was a gift. Now they want it back. I have only had the stock for two months. They have proposed that they will sign a contract saying they will promise me a percentage of their estate if I return the stock
to them. It is a fair deal. What are the capital gains tax consequences? If any capital gains tax is due will it be due now or when their estate is distributed? Please advise
Submitted: 2 years ago.
Category: Capital Gains and Losses
Expert:  jgordosea replied 2 years ago.

Greetings,

There is not any capital gain for either the donor or the recipient of a gift upon transfer. Only the later sale or transfer of the gifted property is subject to income tax.

So, if you are gifting the stock back then there is no income tax to either party and there was no income tax on the original gift to you.

It actually sound like it is intended to rescind the original gift and that then would be deemed to not ever had been a gift completed. Again, in that circumstance there is no income tax for rescinding the gift.

When a beneficiary gets assets from an estate there is not income tax upon receipt, much like a gift. When the asset is later sold be the beneficiary there will be gain or loss on the sale.

It is often better to inherit stock, or other assets, than to get them as a gift since generally the cost basis to figure gain of a gift is the original cost basis of the donor but the cost basis of inherited propeprty is the value at the date of death. That is, the beneficiary of an estate does not have to pay gain that occurred during the lifetime of the decedent.

Please ask if you need more information or discussion.

Thank you.

Customer: replied 2 years ago.
You did not answer my question. The stock will be sold for a percentage in the estate. Since no money will be received until a future time when will the tax be due?
Customer: replied 2 years ago.
I am hoping it will be due when I get the money
Customer: replied 2 years ago.
Not now
Expert:  jgordosea replied 2 years ago.

Hello again,

Since the percentage of an estate of unknown future value is not able to be able to known this is not a sale for tax purposes. A transfer of property for an unknown future amount is not reported as a current sale. With no sale for tax purposes no gain or loss is incurred.

Either you are gifting back the stock or the original gift is being undone as if it never happened. In both of those cases there is no capital gain to report.

Nothing is due now. Nothing is due on inheritance of cash or property received from an estate. Income earned by inherited property is included as subject ot income tax, including sale of inherited property.

Hope that clairfies but please do ask if you need more discussion.

Thank you.

Customer: replied 2 years ago.
Well I simplified the facts to make it easier to answer the question. So actually there will be capital gains tax maybe because the value of the sale is unknown. The shares were actually gifted to a qsst trust. I am the trustee. I cannot give the shares back unless I get fair value. An interest in the estate is fair value for a lot of reasons I don't need to get into. It's unknown but it is also unknown what the s corp will be worth at some unknown future date and the estate includes the s corp anyway or it's proceeds from sale. So I think I have figured out the solution and even if there is a loss the bene will get a tax break. I am a genius.
Expert:  jgordosea replied 2 years ago.

Hello again,

Glad you could use the information and get an answer.

Best regards.