<p>Is there a way to liquidate an investment (eg, mutual fund, etc) and have proceeds sent directly to school to help cover student's tuition/etc. - and have it not be counted as a capital gain/taxable event? Am aware of 529's but couldn't find a plan I was happy with.</p>
<p>No. 529 accounts and certain Govt bonds are the only investments that have special exemptions when being used for education expenses. And IRAs have a penalty (but not tax) exemption.</p>
<p>You could gift the appreciated assets to your child via a UTMA, liquidate the assets within the UTMA then roll them over into a UTMA/529. The kiddie tax would still apply to the capital gains although if under the limit for kiddie tax ($950 in unearned income? you can look this up) then the gains might be sheltered to a certain extent.</p>
<p>The gift tax exclusion is $14,000 in 2013.</p>
<p>^Not sure about that. When you transfer the assets to your child UTMA, you probably need to declare tax on the gains at the moment the money change hands. You can give gift, but that does not relieve you of the obligation to claim capital gains on the asset that was given. Any gain after the transfer would be subject to the kiddie tax but not before. I would be careful with that.</p>
<p>“Declare tax on the gains at the moment the money changes hands”</p>
<p>As a CPA, I suggest seeking professional tax advice and not advice from random people on CC.</p>
<p>The gift is received by the recipient with its original basis. The giver does not owe any tax on the gain, whether the gain is realized or not. This is one reason why people give appreciated assets to charities.</p>
<p>[Tax</a> Rules for Gifts « Fairmark.com](<a href=“http://fairmark.com/general-taxation/tax-rules-for-gifts/]Tax”>Tax Rules for Gifts - Fairmark)</p>
<p>This is also one reason why the Kiddie Tax applies.</p>
<p>Plus, your basis in a gift is sometimes, but not always, identical to the donor’s basis. I second the recommendation to not rely on advice from random people on the internet.</p>
<p>allyphoe can you give an example of when the gift basis is not the same as the donor’s original basis? Just curious about this. Thanks.</p>
<p>More of a loan, but if you have a margin account, you can borrow on the equities. There is interest but it will avoid a taxable sale. Also margin interest expense can be used to offset investment income. GL</p>
<p>If the stock is appreciated, the basis for the recipient is the same as the donor (plus any gift tax paid by the donor, if it was above the exclusion amount). The recipient will then have to file a tax return, and pay tax on the capital gain. As already mentioned, if about $950, it will also trigger the “kiddie tax.” If you are not comfortable filing the tax return for the recipient, you should take the cost of having someone else do so into consideration. That cost could be more than the savings you realize by not including it on your own taxes.</p>
<p>If the stock has lost value, it is better to sell it and capture the loss before making a gift. While the donor’s basis carries if the recipient ands up selling at a gain, but not if they sell for a loss - loss is based on the fair market value (lower than the original basis) at the time of the gift.</p>
<p>As others have said, talk to a professional, or do the research yourself. Some of us here do in fact know what we’re talking about, but you don’t know us, and can’t vet our advice over the internet. Verify anything you read here - in terms of taxes, the IRS website has all the necessary information, you just might have to dig for it.</p>
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<p>If a stock has paid out liquidating dividends, then the basis is adjusted because the dividend is not taxed as income.</p>
<p>If you reinvest dividends, your basis in the total investment is adjusted all the way along. Some people forget that.</p>
<p>Just a few examples how basis gets adjusted along the way.</p>
<p>[Note that if you read what I wrote carefully, I never said, “original” basis. The tax concept is technically adjusted basis, which is whatever your basis is at a given time. Adjustments to basis are sort of tangential to the discussion of how the recipient’s basis can differ from the donor’s.]</p>
<p>If the donor paid gift tax, the recipient’s basis will be higher than the donor’s basis at the time of gift, but it’s somewhat more complicated than “plus any gift tax.”</p>
<p>If the property has FMV < basis at the time of the gift, the recipient has a bifurcated basis, with a different basis used for calculating loss than for calculating gain.</p>
<p>Pub 551 is where you ought to be looking for tax advice, if you want to look anywhere online.</p>
<p>I knew I should’ve paid more attention to my “Word of the Day” toilet paper. If I had, I might’ve known what “bifurcated” means. :)</p>
<p>Thank you all - agree on checking with professionals - just trying to think of some alternatives to loans.</p>
<p>What kind of return are you getting on your investments? You’re going to have to pay the capital gains tax whenever you liquidate, so it might make sense to just do so now, and use the money to pay the tuition.</p>
<p>You need to balance the impact on EFC with the cost of the loans.</p>
<p>Option 1: Cash out now, pay CG tax, take a hit to next year EFC
Option 2: Cash out senior year, pay CG then, don’t take a hit to EFC, but pay interest.</p>
<p>Will the increased EFC (assume 50% of capital gain?) be more than the interest you end up paying on the loan? This is why I like the “affordability plan” at the college D chose - her aid won’t change due to liquidating assets or contributions from grandparents 529 plan.</p>