Can You Gift a Stock? How It Works and Tax Implications

Gifting stock can be a meaningful way to transfer wealth, support loved ones, or engage in philanthropic endeavors. This practice involves specific procedures and tax considerations for both the donor and the recipient. Understanding these aspects helps ensure compliance with regulations and optimize financial outcomes.

Ways to Gift Stock

Gifting stock requires gathering specific information from both the donor and the intended recipient. The donor will need the recipient’s full legal name, current address, and Social Security Number or Taxpayer Identification Number. If the recipient has a brokerage account, their account number and the name of their brokerage firm are necessary. Information about the stock itself, such as the company name, ticker symbol, and the exact number of shares to be gifted, is also required.

A common method for transferring shares is through a broker-to-broker transfer. This involves the donor contacting their brokerage firm to initiate the transfer from their account directly to the recipient’s brokerage account. Brokerage firms require specific forms, such as a Transfer of Assets (TOA) form or a Gift of Securities form, along with authorizations. Transfers between accounts at the same brokerage firm can be completed within a few business days, while transfers between different firms may take one to several weeks.

For stock held in physical certificate form, the process is different. The donor must endorse the stock certificate by signing it, requiring a signature guarantee from a bank or broker to verify authenticity. A transfer of ownership form printed on the back of the certificate may also need completion. Once endorsed and completed, the certificate can be sent to the company’s transfer agent or directly to the recipient.

Gifting stock to a minor involves establishing a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) custodial account. These accounts allow assets to be managed by a designated custodian until the minor reaches the age of majority, which varies by state (18 or 21). The custodian manages and invests the property on behalf of the minor. Contributions to these accounts are irrevocable, meaning the donor cannot reclaim the assets once gifted.

Stock can also be gifted to a trust, which provides a structured approach to managing and distributing assets, especially for complex situations or long-term financial planning. Gifting to a trust requires the involvement of an attorney to ensure the trust document is properly drafted and the transfer adheres to the trust’s terms. The stock is transferred to the trust’s trustee, who manages the assets according to the trust’s provisions.

Determining the Value of Gifted Stock

The value of gifted stock is determined on the “date of the gift” for gift tax purposes. This date is used for calculating any potential gift tax liability. The fair market value (FMV) is the standard, representing the price at which property would change hands between a willing buyer and seller, both having reasonable knowledge of relevant facts and neither being compelled to act.

For publicly traded stocks, the fair market value is the mean between the highest and lowest selling prices on the date of the gift. If no sales occurred on the exact date, but sales happened within a reasonable period before and after, a weighted average of the mean prices from those nearest trading days is used.

Valuing privately held stock is more complex due to the absence of a readily available market price. In such cases, a professional appraisal is required to determine the fair market value. The appraisal considers factors including the nature of the business, its financial condition, earning capacity, and market prices of comparable publicly traded companies. Discounts for lack of marketability or control may also be applied, reflecting the illiquidity and limited influence associated with privately held shares.

Tax Implications of Gifting Stock

Gifting stock carries tax implications for both the donor and the recipient. Understanding these consequences aids effective financial planning and compliance with federal tax laws.

From the donor’s perspective, federal gift tax rules apply, although most gifts do not result in an actual tax payment. The Internal Revenue Service (IRS) provides an annual gift tax exclusion, which for 2025 is $19,000 per recipient. An individual can give up to $19,000 in cash or property to as many people as they wish each year without triggering gift tax reporting or using their lifetime exemption. Married couples can combine their exclusions, allowing them to gift up to $38,000 per recipient annually without reporting the gift.

Gifts exceeding the annual exclusion amount reduce the donor’s lifetime gift tax exemption. For 2025, the lifetime estate and gift tax exemption is $13.99 million per individual. While this reduces the available lifetime exemption, it does not result in an immediate gift tax payment unless cumulative lifetime gifts exceed this amount.

When a gift exceeds the annual exclusion, the donor is required to file IRS Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” Filing this form reports the gift to the IRS and tracks the amount of the lifetime exemption used. The deadline for filing Form 709 is April 15 of the year following the calendar year in which the gift was made.

For the recipient, they do not pay income tax on the value of the gifted stock itself. The gift is considered a transfer of wealth, not taxable income. However, tax implications arise when the recipient eventually sells the gifted stock.

The “carryover basis” rule is important for the recipient. This rule dictates that the recipient’s cost basis for the gifted stock is the same as the donor’s original cost basis. For instance, if a donor purchased stock for $100 and gifts it when it’s worth $1,000, the recipient’s cost basis is still $100.

This carryover basis directly impacts the recipient’s future capital gains or losses. When the recipient sells the stock, any capital gain is calculated based on the difference between the sale price and the donor’s original cost basis. The holding period for determining whether the gain is short-term or long-term also carries over from the donor.

While federal gift tax rules are the primary consideration, a few states may impose their own gift taxes. These are less common compared to federal gift tax. Connecticut is currently the only state that imposes a state gift tax.