Q: I took a distribution from my IRA to fund a short-term cash need and plan to return the funds within 60 days to avoid any tax or penalty. My first question is whether I have to return the funds to the same IRA that I withdrew from. I have three separate IRAs with different firms and different investment objectives and I would like to put the funds back into a different fund. My second question is exactly how they measure the 60-day period. If the 60th day is a holiday or weekend is it extended into the next regular business day?
You will be able to roll the funds back into any IRA. The IRA custodian has to report the transaction on a Form 5498. This form lets the IRS know about the contribution that you are classifying as a rollover.
The 60-day period begins the day after the IRA distribution was received. So the day of receipt of the funds is Day Zero and the first day thereafter is Day One.
As an example, if the distribution is received August 13, that is day zero. August 31 is day 18, September 30 is day 48, and Oct. 12, which is a Saturday, is Day 60. The last day to complete the rollover is October 12 because there is no extension when the date falls on a weekend (or a holiday).
Q: Is there still a tax credit available for adoption expenses for a 2019 adoption? If so do you know how much it is and how it is claimed?
Yes there is still an adoption credit available. It can be as large as $14,080 in 2019 and IRS Form 8839 is used to claim the credit.
The rules can be fairly complicated so I suggest that you take a look at the form to see what information is asked for. The instructions to this form should help you to understand the requirements.
You did not indicate your income level – the credit is unavailable if your income is $251,160 or above. If income is $211,160 or below there is no reduction in the credit.
You also did not indicate what type of adoption this is — the rules are different for an adoption of a special needs child. The IRS form and its instructions can help you understand these rules.
Q: I want to gift $15,000 to my daughter by the end of the year. One thing I have not seen discussed anywhere is giving stock that has increased in value. It seems to me that there is a potential tax savings if the child will pay no capital gains tax. I have a stock mutual fund that has increased in value. If I gave my daughter units valued at $15,000, which I paid $5,000 for, couldn’t I gift this to her and she would be able to sell with no tax due?
If I follow the idea and your daughter’s tax situation then I agree with you. The gift will not be a taxable disposition of the fund units. Your daughter will acquire your “tax basis” of $5,000 in the units. She will also have your holding period in the units.
If your daughter then sells the units, she will have a capital gain of $10,000 (assuming a $15,000 sales price). I assume that you held the units for more than a year, which will cause your daughter’s capital gain to be classified as long term.
Long-term capital gains can be taxed at a zero rate for a single taxpayer with $39,375 or less of taxable income (including the capital gain). If that is your daughter’s tax situation then she will be able to sell and incur no capital gains tax.
So I like your idea. You are probably correct in stating that the tax benefit of gifting appreciated long-term capital gain property should be discussed more than it is.
Your idea also works when appreciated long-term capital gain property is gifted to a charitable organization. The charity can sell and pay no tax and the donor can deduct the fair market value. Your daughter’s tax situation (zero capital gains tax) may make her like a tax-exempt charity.
James R. Hamill is the Director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at firstname.lastname@example.org.