In 2011, single taxpayers with taxable income under $34,500 owe 0 percent tax on long-term capital gains. Therefore, you might want to give appreciated assets to youngsters to sell, tax-free. However, if the recipients are students, there may be drawbacks:
* The so-called “kiddie tax” caps the 0 percent tax rate on long-term gains at $1,900 per young student in 2011, with even lower limits in many cases. Full-time students are considered kiddies until they reach age 24.
* If you give appreciated assets to your children to sell, the money they receive from the sale will be theirs to keep at some point. Young people with money to spend may not act prudently.
* The money from such sales will count as the child’s assets, when determining eligibility for financial aid for higher education. Consequently, your family might receive less aid.
Therefore, you might want to limit asset transfers to young students. However, gifts of appreciated securities to children who finished school before 2011 might make sense; the same is true for students who are 24 or older. Then the children will be beyond the reach of the kiddie tax and perhaps mature enough to use the money judiciously.