Giving Stock to Another Person

One of the simplest and most common estate planning tools is giving assets to a family member. The tax laws allow gifting up to $19,000 to anyone each year without requiring a gift tax return for 2026. In fact, a married couple can choose a method called “gift splitting” to give up to $38,000 annually. It doesn’t matter whether the gift is cash, securities, or another type of asset.

Why give to a family member?

Transferring assets to a family member during your lifetime lowers the size of your final estate and can potentially reduce estate taxes. Additionally, any increase in the asset’s value goes to the recipient, further decreasing your estate.

But perhaps the most important reasons for making a gift to a family member today are that the person needs the assets or you simply want to show your generosity. You can see the person receiving and enjoying the gift.

Special income tax rules for gifts of stock.

Giving stock to another person does not trigger any income taxes at the time of the gift. The new owner can decide when to sell the stock and must handle the taxes at that point. The key question is “What is the new owner’s tax basis in the shares?” To determine this, you need to know the stock’s basis for the original owner, the fair market value on the date of the gift, and whether any gift taxes were paid at that time.

The rules are somewhat complicated, and you may want to consult your tax advisor, but here are some examples:

If the fair market value of the gift at the time it’s given exceeds the donor’s basis, the new owner will inherit the donor’s basis. The new owner will pay tax on the difference when they sell the stock.

Assume a mother owns 100 shares of XYZ stock that she purchased for $50 per share, giving her a tax basis of $5,000. When she gives the shares to her son, their value is $70 per share, totaling $7,000. The son then sells the shares for $80 each, totaling $8,000. When he sells, the son reports a gain of $3,000 ($8,000 minus $5,000).

If the gift’s fair market value at the time of the gift is less than the donor’s basis, the new owner’s tax basis depends on whether the new owner sells the asset for a gain or a loss. If the asset is ultimately sold for a gain (compared to the original owner’s basis), the new owner’s basis will be the original owner’s basis.

Assume a mother owns 100 shares of XYZ stock that she bought for $50 each. Her tax basis is $5,000. When she gifts the shares, they are worth $40 each, totaling $4,000. She gives the shares to her son, who sells them for $80 each, or $8,000. The son reports a gain of $3,000 ($8,000 minus $5,000).

If the asset is ultimately sold at a loss compared to the fair market value at the time of the gift, the new owner’s basis will be the fair market value at the time of the gift.

Assume a mother owns 100 shares of XYZ stock that she bought for $50 per share. She has a tax basis of $5,000. At the time of the gift, the shares were worth $40 per share or $4,000. She gives the shares to her son, who sells them for $30 per share, or $3,000. The son reports a loss of $1,000 ($3,000 minus $4,000).

If the asset is ultimately sold for something between the original owner’s basis and the fair market value at the time of the gift, there is no gain or loss to report.

Assume a mother owns 100 shares of XYZ stock, which she bought for $50 per share, giving her a tax basis of $5,000. At the time of the gift, the shares were worth $40 each, totaling $4,000. If the son sells the shares for an amount between $4,000 and $5,000, there will be no gain or loss to report.

Summary

Giving shares of stock or other assets to a family member can serve many purposes. However, the tax rules can be complicated. Before making such a gift, be sure this is something you truly want to do and ensure you have the necessary tax basis information.