Cost Basis for Capital Gains

Q: Hi Jeff:

I read your article and it triggered another question - Over the past five years, my folks have given securities to their grandchildren as Christmas presents although they were outside of a 529B plan. Let's say the kids now want to sell these stocks.

For tax purposes, will the dates that these assets were purchased and the cost basis refer back to when my father bought these years ago or will the kids use the date and cost basis value relating to the day they were received from Grandpa? This could have a significant difference in the capital gains.

A: They would be responsible for capital gains taxes based on the grandfather's cost basis.

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