Caution: I know Federal income taxes for my own situation, and I've done
some related reading, but I am not a tax practitioner. I suggest what I
_think_ the situation is, but you should verify this on your own or by
consulting a qualified lawyer or accountant.
On 2022-05-22 14:27, Fred Tydeman wrote:
> Some years ago (before I started using GnuCash), I bought some shares of a
> mutual fund (so have an Equity:Opening Balances transaction)
> Over the years, the dividends were reinvested to buy more shares.
> Now, I wish to give all of these shares to my son.
> How do I record both the basis price and the fair market value (FMV)?
> I assume that I record a sale of all the shares at the current basis price
> in my account (so I have no capital gain).
You're not selling the shares, you're giving them away. Why would you
record a sale?
> And I record a buy of the same number of shares at that basis price in
> my son's account (in the US, the basis price carries to the new
> owner).
Are you keeping books for your son? I don't see any reason why you would
record anything in someone else's accounts in _your_ books.
And again, this is not a buy; it's receipt of a gift of shares, as you
described it.
======================================================================
Your basis, as I understand things, is the amount you paid for the
original shares plus the amounts of all the reinvested dividends (since
you paid tax on the dividends in the year you received them).
The FMV is easy to determine: look up the price of a share on the day
when you make the gift, and multiply by the number of shares.
FMV may be more or less than your basis -- probably less, if you make
the gift in the near future. I have no idea whether the unrealized gains
or losses represent a capital gain or loss. If the FMV becomes your
son's basis, as you say, then you may well have a capital gain or loss.
(If FMV is more than your basis, but you don't have a capital gain, then
those gains would escape taxation, which I doubt Congress would have let
happen.)
Anyway, moving on to your questions:
> How do I record the FMV of the gift? Perhaps: Expense:GIft.
> A gift tax return in the US needs both the basis price and the FMV of
> the gift.
> Do I need to record unrealized gain?
> Do I need to adjust Equity:Opening Balances?
1. To me, Equity:Opening Balances means _opening_ balances. I would only
make an adjustment if I discovered an error in the figure I had
recorded. And, as Michael suggested, I would do it by an adjusting entry
dated when the error was discovered, not by changing the original
transaction.
2. Yes, Expenses:Gift (or Gifts) seems like a good choice to record this.
3. You don't _need_ to record unrealized gains in GnuCash, but I would.
Otherwise you won't have an offsetting credit for the full debit
representing the value of your gift to your son.
4. Have you been recording your dividends as they occurred? That would
be in the amount of the market value on the day the dividend was
credited to you. So you should have a string of transactions like this
over the years:
Debit to Assets:XXX Mutual Fund
Credit to Income:Dividends
If you have not been recording them, I think you need to pull out your
statements, add them up, and make the above transaction for the full
amount. (If you haven't been declaring them on your tax returns, I think
you have an IRS problem unless you know of some reason why you were
exempt from reporting them.)
Once you have recorded the dividends, the value in Assets:XXX Mutual
Fund is your basis (as I understand things).
5. After recording dividends if necessary, I would next bring the
balance in Assets:XXX Mutual Fund up (or down) to FMV:
Debit to Assets:XXX Mutual Fund
Credit to Income:Gain on Investments
If FMV is less than your cost + dividends, reverse the debit and credit
accounts. (Or record a minus number, and let GC reverse them for you.)
6. Finally, you record the gift:
Debit to Expenses:Gift
Credit to Assets:XXX Mutual Fund.
The amount is the (new) value of the XXX Mutual Fund account, so this
transaction reduces the value of XXX Mutual Fund in your accounts to
zero. But you still have the information about basis _and_ FMV in the
transactions in that account.
--
Stan Brown
Tehachapi, CA, USA
https://BrownMath.com
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