capital gains tax on gift of US stock

[Barlow]

A US resident family member wants to gift me and my spouse some US stock that has gone up significantly in value. My spouse and I are CDN resident citizens. I am a US person; my spouse is not. What tax issues should I be aware of (esp. regarding capital gains), both at the time of the gift and when I or my spouse eventually sell some of this stock? Will I potentially owe the IRS capital gains tax on the donor's gains when I sell? What about my spouse?

[nelsona]

Neither the donor nor your non-US spouse would be subject to any US cap gains tax. There may be gift tax issues for the donor if the donation is more than a certain amount. The spouse would owe cap gain in canada when sold based on the value when it received.

For you, you would inherit the original cost basis for US purposes (you would need that info from your donor), and adjusted cost basis for Canada similar to your spouse. Again, gift tax issues may arise depending on the amount.

[Barlow]

This does seems to be the most straightforward reading of things, but I have to say that I'm a bit surprised that both the donor and my spouse are off the hook for tax on gains prior to the gift. (My spouse is a wonderful person, but she's not a registered charity!)

It seems like the best course of action might be to ask to donor to give the entire gift to my spouse (assuming we can find a broker who's willing to facilitate this). Would there be any negative tax consequences (beyond CDN attribution rules) if my spouse then gave some of the stock to me?

Thanks for weighing in on this, nelsona.

[nelsona]

As I said, the only thing that your donor has to watch for is gift limits. But as to gifting stock to a foreign person, there are no US cap gains issues.

Your spouse gifting to you would still make it finally taxable in spouse's hands, by the attribution rules, with the cost basis of the day your spouse received it.