Gift Is Irrevocable After Child Turns 18

QUESTION: Over the years, my husband and I put money to cover our daughter’s projected college costs into utility stocks through a Uniform Gift to Minors account. We used her Social Security number and I was listed as custodian. Now she has decided not to go to college. Is there any way to transfer these stocks back to our account? We would prefer not to sell them. If we can make the transfer, will there be a capital gain to declare and pay taxes on? We would like to make this move in a way that would mean the least tax to us.--C. M.

ANSWER: The goal you want can be accomplished, but not without the consent of your daughter.

Gifts made under the Uniform Gift to Minors Act are considered irrevocable, so you may not just take back the stock unilaterally. However, your daughter can decide to give the stock back to you, essentially making a gift of the shares. But your daughter may not make this gift until she reaches the age of majority, the time at which she is allowed to take possession of the assets in the account and dispose of them as she wishes. (In California, this age is 18.)

But, be advised: Once your daughter takes possession of her account, she may do what she wants with it, including selling the shares and buying a car, or skipping off to Europe. If she decides to give them back to you, this act would be considered a gift and would be subject, for tax purposes, to the same requirements as other gifts. Under the Internal Revenue Code, one individual may give another individual $10,000 a year tax-free to the recipient. So, your daughter could give you and your husband stock worth a total of $20,000 a year without your having to pay taxes. There is no need to pay taxes on the shares until they are sold.

By the way, the tax basis of the stock--which becomes important when the shares are sold and your gain is established--remains the same regardless of what your daughter does. If she sells the shares, the basis is the value of the stock when she received it. If she gives the shares to you, that value is transferred with the gift.

Can Stock Losses Be Used to Offset Gains?

Q: In 1984, I purchased 400 shares of an oil services stock for a total cost of $8,582.50. Last year, another company acquired my company through a stock swap and I was given shares in the acquiring company. I recently sold these shares and my proceeds were $347.38. I also sold some other shares and had a gain of about $2,800. May I use my losses from the first sale to offset the gain on the second sale when I file my tax return?--A. T. V.

A: Yes, and more.

Capital losses may be used to offset up to $3,000 a year of ordinary income. According to our calculations, you suffered a loss of $8,235.12 on the sale of your first investment. You should deduct from this your $2,800 gain from the sale of the second investment to give you a net loss for the year of about $5,435.

IRS regulations will allow you to write off the loss over a two-year period, taking the full $3,000 writeoff in the first year and, assuming no additional stock market activity, a $2,435 writeoff in the second year. Schedule D of the tax form is used to report capital gains and losses. Complete it when you file your tax return next April.

Earning Income While on Social Security

Q: I will be 62 next month and am seriously considering taking my Social Security benefits early. I had thought that, starting next year, the Social Security Administration was going to raise the amount that retirees could earn while still keeping partial benefits. However, the benefits counselor at the local agency office says the old levels still apply. This makes a big difference to me, and I need a clarification. Also, I am wondering if the income limits that apply to people under age 65 and those over 65 are any more finely tuned, perhaps by individual years?--R. F. G.

A: The questions you raise involve the limits the Social Security Administration has placed on income that recipients are allowed to earn while still receiving full benefits.

Currently, agency regulations allow retirees under age 65 to earn up to $6,480 a year while still receiving full Social Security benefits. For retirees age 65 to 69, the limit is $8,880 annually. There is no earnings limit for retirees age 70 and older. Under current Social Security regulations, retirees with earned income--this does not include dividends and interest payments--above the limits for their ages lose $1 of Social Security benefits for every $2 of earnings.

Beginning next year, retirees age 65 to 69 will lose $1 for every $3 earned above the limit. Retirees under age 65 will still lose $1 worth of benefits for every $2 of earnings above the limits. By the way, these limits will be raised slightly next year because they are adjusted annually for inflation.

As for the second part of your question, the Social Security Administration applies the income limitations equally to all recipients in the two age groups and does not gradually increase the earnings limit by year. You are either under age 65 and are subject, this year, to a $6,480 earnings limit, or you are age 65 to 69 and subject to the $8,880 limit.

Marriage Is Taxing the 2nd Time Around

Q: Six years ago, my first husband and I sold our home and took the one-time tax break available to senior citizens. After my husband’s death, I remarried a man who had not used the exemption. I am wondering if he can now use the exemption since the house we live in is his and is listed in his name only. Or, has he lost out completely because of our marriage?--O. R.

A: Remember the part of the wedding vows that says “for better and for worse�? Well, for your husband, this is one of those “worse� times. The government allows a married couple only one exemption, regardless of who takes it. Because you had already taken advantage of your exemption, your current husband is not entitled to invoke his for as long as your marriage lasts. This is true regardless of whose name appears on the title to the house and applies to all married couples regardless of whether they file their tax returns separately or jointly.

Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.