NORTHVILLE, MI (Dec. 30, 1999) -- Short column tonight as I'm hitting the bottl... er, road early for the New Year's festivities. Speaking of the New Year, I'd like to wish Fools everywhere a healthy, prosperous, and exceedingly Foolish 2000.

If you were fortunate enough this holiday season to land yourself some shares of stock from a kind relative, friend, or remarkably generous stranger on the subway, there are a few accounting issues to keep in mind regarding the reception of these gifts.

If you did not receive a gift of stock this year, you can go ahead and turn off your monitor and take a nap. You'll be up late tomorrow night.

So, you've received some stock as a gift. What exactly will you need to know come tax time? There are a few key pieces of information to have at the ready:

  1. The donor's cost basis.
  2. The fair market value (FMV) at the date of the gift.
  3. If it was a sizable offering -- greater than $10,000 in value -- the amount of gift tax paid by the donor.

Now what is this information good for? Your (the gift recipient's) cost basis for tax purposes will be determined according to the following rules:
  1. If the FMV of the stock is less than the donor's basis at the time of the gift:
    1. Your basis for gain is the same as the donor's adjusted basis.
    2. Your basis for loss is the FMV at the time of the gift.

  2. If the FMV of the stock is more than the donor's basis at the time of the gift, then your basis is the donor's basis.

  3. If the donor was required to pay gift tax, your basis is increased by the amount of gift tax paid that is attributable to that gift.

    Please keep in mind that you not only assume the basis determined by the donor's basis or the FMV, but you also assume the donor's holding period. If the stock was held for more than one year and one day before you received it, you're looking at a long-term holding period, from a capital gains perspective.
Have a great weekend, Drippers! Be festive. Be safe. Be Fool.

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