Can You Transfer Stock to Another Person Without Paying Taxes?

Transferring ownership of stock as a gift to a family member or for other personal reasons is a common financial activity. While the transfer of valuable assets like stock can trigger federal tax obligations for the person giving the gift, specific rules allow for these transfers to occur without any immediate tax payment. The tax implications of gifting stock are the responsibility of the donor, not the recipient. Federal tax law provides several mechanisms that permit individuals to transfer a certain amount of assets, including stock, on a tax-free basis.

Utilizing the Annual Gift Tax Exclusion

The most common method for transferring stock without tax consequences is the annual gift tax exclusion. This IRS rule allows an individual to give a specific amount of property to any number of other individuals each year without having to pay gift tax or file a gift tax return. For 2025, the annual exclusion amount is $19,000 per recipient. A person can give stock valued up to $19,000 to any single person and repeat that gift to as many different people as they wish within the same year.

For example, a parent could gift $19,000 worth of stock to their child, $19,000 to a grandchild, and $19,000 to a friend, all in 2025, without triggering any reporting requirements. The value of the stock for gift tax purposes is its fair market value on the day the transfer is completed. Married couples can use “gift splitting” to combine their individual annual exclusions, allowing them to gift up to $38,000 to a single recipient in 2025. To utilize gift splitting, the couple must consent to the arrangement, which often requires filing a gift tax return even if no tax is due.

Applying the Lifetime Gift and Estate Tax Exemption

When the value of gifted stock to a single person in one year exceeds the annual exclusion amount, it does not automatically result in a tax bill. The excess amount is applied against the donor’s lifetime gift and estate tax exemption. This exemption is a much larger, cumulative amount that an individual can give away during their lifetime or leave as part of their estate without incurring federal gift or estate tax. For 2025, this lifetime exemption is $13.99 million per individual.

For instance, if an individual gifts $119,000 worth of stock to their child in 2025, the first $19,000 is covered by the annual exclusion. The remaining $100,000 is considered a taxable gift, but no tax is owed; that amount is subtracted from the donor’s lifetime exemption. The donor is required to report this gift to the IRS by filing Form 709. For most people, the combination of the annual exclusion and the lifetime exemption means that gifting stock will not result in an immediate tax liability. Under current law, the lifetime exemption amount is scheduled to be reduced by about half at the beginning of 2026.

Specific Tax-Exempt Transfers

Beyond the standard gift tax exclusions, federal tax law identifies certain types of transfers that are inherently tax-exempt, regardless of the value of the stock being transferred. These rules apply to specific relationships and provide additional avenues for moving assets without tax consequences.

Transfers to a U.S. Citizen Spouse

Gifts of stock made between spouses who are both U.S. citizens are generally unlimited and not subject to federal gift tax. This is due to the unlimited marital deduction, which allows for the free transfer of assets between spouses. A person can transfer any amount of stock to their U.S. citizen spouse at any time without needing to file a gift tax return or use any of their lifetime exemption. This unlimited exclusion does not apply if the recipient spouse is not a U.S. citizen; in that case, a higher annual exclusion of $190,000 applies for 2025.

Donations to Qualified Charities

Transferring appreciated stock to a qualified charitable organization is another way to avoid taxes, as it is not considered a taxable gift. This strategy can provide significant income tax advantages. When a donor gives stock held for more than one year that has increased in value, they can typically claim a charitable deduction for the full fair market value. This allows the donor to avoid paying capital gains tax on the appreciation. The donor’s deduction for appreciated stock is generally limited to 30% of their adjusted gross income (AGI) for the year, with a five-year carryforward for any excess contributions.

Cost Basis Considerations for the Recipient

While the donor is concerned with gift taxes, the recipient of the stock must understand the concept of cost basis, as it will determine their tax liability when they eventually sell the shares. When stock is received as a gift, the recipient generally takes on the donor’s original cost basis. This rule is referred to as “carryover basis” and differs from inheriting stock, where the basis is “stepped-up” to the fair market value at the date of the original owner’s death.

The carryover basis rule has direct consequences. For example, imagine a parent gifts stock to their child that they originally purchased for $2,000, and at the time of the gift, the stock is worth $15,000. The child’s cost basis is the parent’s original purchase price of $2,000. If the child later sells the stock for $17,000, they will have a taxable capital gain of $15,000, as the recipient is responsible for the tax on all the appreciation.

There is a special rule if the stock’s fair market value at the time of the gift is less than the donor’s basis. In this situation, the basis for determining a future loss is the lower fair market value at the gift date. Because of the carryover basis, it is important for the recipient to obtain and keep records of the donor’s original purchase price and date, as the IRS may otherwise assume a cost basis of zero.

Federal Gift Tax Return Filing Requirements

Understanding when to file a federal gift tax return is an important part of the stock transfer process. The primary document is IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. A gift tax return must be filed if an individual gives an amount of stock or other property to any single person that exceeds the annual exclusion for that year ($19,000 for 2025).

This filing requirement exists even if no tax is owed because the excess amount is being covered by the lifetime exemption. The purpose of the return in this case is purely informational, documenting the reduction in the donor’s available lifetime exemption. Form 709 is also required when spouses elect to “split” a gift to a third party. The deadline for filing Form 709 is typically April 15 of the year following the gift, aligning with the standard income tax filing deadline. An extension to file an income tax return also automatically extends the time to file Form 709.