Marlo and Merlin's son, Alex, needs $20,000 to start a business. They have $30,000 in securities that they can use to give him the capital he needs. Pertinent information regarding the securities is given below:
|
|
Fair Market Value
|
Basis
|
Purchase Date
|
|
Security A
|
$10,000
|
$ 7,000
|
2/10/07
|
|
Security B
|
$10,000
|
$ 5,000
|
2/14/04
|
|
Security C
|
$10,000
|
$14,000
|
3/19/03
|
Marlo and Merlin are in the 28% marginal tax rate bracket; Alex is in the 15% marginal tax rate bracket. Neither Marlo, Merlin, nor Alex has any other capital asset transactions during the year. Alex's basis in any of the securities gifted to him will be the lesser of his parents' basis or the fair market value of the security. Discuss the tax effects of alternate methods of transferring $20,000 to Alex, and devise an optimal plan for making the transfer.