Unless you're giving gift cards, you probably remove the price tags from presents you buy for others. But there's at least one situation when admitting how much you paid is not a social faux pas: when you give stock. In that case, telling the recipient what you paid for the investment, its current worth, and how much gift tax you paid on the transfer can save tax dollars down the road.

Here's why. The person to whom you give the stock generally receives your basis along with the shares. Your holding period carries over, too.

How it works. Say you bought a stock that's now worth more than you paid for it. You decide to gift it to your daughter. To calculate the gain when she sells the stock, your daughter will need to know your original purchase price plus adjustments such as commissions. She'll use the date you purchased the stock to determine whether the gain is short- or long-term.

The fair market value at the time of the gift comes into play when the stock is worth less than you paid for it. When this happens, the recipient receives what's called a dual basis. That means she'll use your carried-over adjusted basis if she sells the investment at a gain. If she sells at a loss, she'll use the lower of your basis or fair market value.

The fair market value also determines the amount of your gift — and any tax. When you give more than $13,000 ($26,000 if you and your spouse combine gifts) to any one person in 2009 or 2010, you may have to pay gift tax. A portion of that tax can increase the recipient's basis.

Please call if you're planning gifts of stocks or other investments this holiday season. We'll be happy to help you wrap up the tax numbers.


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