Money Management Q&A

March 21, 2008

Donating personal property; revocable trusts; money market funds

When you can deduct worthless shares

I own shares in a company that recently filed for bankruptcy. Assuming the shares were worthless, I claimed a loss for them on my 2007 tax return. Now I've learned that the company is still doing business and its shares may have some minimal value. What should I do now?

You'll have to file an amended return for 2007, since you claimed a loss before you were entitled to it. And if you can sell the stock shares this year, that would be wise. That way, you can claim the capital loss for 2008 without question. What if you still have the shares at the end of this year and their value remains in question? Claim the deduction for 2008, anyway, and file an amended return later on if it turns out that you were wrong. If you wait for definitive proof of worthlessness, which could be a long time in coming, you could end up forfeiting the opportunity. That's because you must take the deduction no later than seven years after the stock completely loses value. The countdown begins on the due date of your return for that year.

In January, I gave a local art school a $10,000 painting that I'd owned for five years. The school plans to display it so students can use it for reference, and I expected to deduct the painting's full market value on my tax return this year. But an art dealer I know says I may not be able to if the school sells the painting. Is he right?

Yes. New rules apply to appreciated personal property owned for longer than a year and donated after Sept. 1, 2006. If the amount of the deduction tops $5,000 and the charity sells the property before the end of the year in which it was donated, the taxpayer can deduct only the property's cost basis, not the fair market value. You'd be able to get around that rule only if the charity certifies in writing that selling your painting supported its tax-exempt purpose, or that other circumstances forced it to sell. Even if the charity doesn't sell the painting this year, if it does so within three years of your donation date and it refuses to provide the required certification, you'll have to report the difference between the amount you deducted and your original cost basis as ordinary income.

Giving up your share of savings bonds

I bought $10,000 worth of Series EE savings bonds several years ago and registered them jointly in my name and my son's. Now I'd like to give him full ownership. Can I do this by delivering the paper bonds to him and telling him that he's now the sole owner?

No. Even if state law permits you to transfer ownership this way, federal law doesn't. You must turn in the bonds and have them reissued in your son's name; otherwise they'll remain part of your taxable estate. To make the transfer, you'll need to complete Form PD F 4000, which you can download at http://www.savingsbonds.gov/forms/sav4000.pdf.

How to figure your investment return

I invested $10,000 in three stocks about a year ago. Is there an easy way to figure my return so far without investment tracking software?

You can get a rough estimate by using a relatively simple formula, according to the American Association of Individual Investors. To illustrate the calculation, let's assume the current value of your stocks is $13,500 and you received $150 in dividends that weren't reinvested. During the year, you invested an additional $1,000 in the same three stocks.

Start with the current total value of your stocks and add the unreinvested dividends ($13,500 + $150 = $13,650). Then subtract half of the net additions you made during the year-the extra amounts invested minus the amounts received for any stock shares you sold. In this case you didn't sell anything, so the calculation is simply $13,650 – $500 = $13,150. Jot down this first result. Now take the amount you initially invested and add half your net additions ($10,000 + $500 = $10,500). Next, divide the first result by the second ($13,150 / $10,500 = 1.25). Subtract 1.00 from your answer, then multiply by 100 to figure your return as a percentage (1.25 – 1.00 = 0.25, which is 25 percent). Although the calculation ignores variables such as investment costs and the timing of purchases and sales, it can still give you a good sense of how well your investments are performing.