How Much Stock Can I Gift Tax Free?

Understanding gift tax rules is important for individuals transferring wealth, especially stock. For tax purposes, a gift involves transferring money or property to another person without receiving full compensation. While the IRS generally imposes a gift tax, specific provisions allow certain gifts to be made without incurring this tax. This article explains how to navigate these provisions, focusing on stock gifts.

The Annual Gift Tax Exclusion

A primary mechanism for making tax-free gifts is the annual gift tax exclusion. This provision allows an individual to give a certain amount of money or property to any number of recipients each year without incurring gift tax or using their lifetime exemption. For 2025, the annual gift tax exclusion is $19,000 per recipient. This means you can gift up to $19,000 to each recipient annually without gift tax implications or reporting requirements.

This exclusion applies to “present interest” gifts, meaning the recipient must have an unrestricted right to immediately use, possess, or enjoy the gifted property. The amount is specifically per recipient for each calendar year. Gifts made within this annual exclusion amount do not reduce the donor’s lifetime gift tax exemption. This allows for consistent tax-free gifting over time, provided the gifts meet the present interest requirement and stay within the annual limit.

Strategies to Increase Tax-Free Gifting

Several strategies can expand the amount of stock or other assets that can be gifted without incurring gift tax. Married couples have a significant advantage through gift splitting. This allows spouses to combine their individual annual exclusions, effectively doubling the tax-free amount they can give to any single recipient. For instance, in 2025, a married couple can collectively gift up to $38,000 to one person without triggering gift tax or reporting requirements.

Another method for unlimited tax-free transfers involves direct payments for specific expenses. Payments made directly to an educational institution for tuition are excluded from gift tax. Similarly, direct payments to a medical care provider for someone’s medical expenses are exempt. These payments must be made directly to the institution or provider, not to the individual recipient, to qualify for this unlimited exclusion.

Valuing Stock for Gift Purposes

Valuing a stock gift for tax purposes hinges on its fair market value (FMV). The IRS requires that gifts, including stock, be valued at their FMV on the date the transfer is made. For publicly traded stock, the FMV is generally calculated as the average of the highest and lowest selling prices on the gift date. If no sales occurred on the exact gift date, valuation typically considers sales on the nearest trading days.

This determined FMV on the transfer date is the amount that counts against the donor’s annual gift tax exclusion. For privately held stock, determining FMV is more complex and usually requires a formal appraisal by a qualified professional. Such appraisals consider factors like company financials and comparable sales to arrive at an accurate valuation.

Gift Tax Reporting Requirements

Even when a stock gift is tax-free due to exclusions, filing Form 709, a gift tax return, may still be necessary. A return is generally required if gifts to any one person in a calendar year exceed the annual exclusion amount. For example, if you gift stock valued at $25,000 to an individual in 2025, the $6,000 ($25,000 – $19,000) exceeding the annual exclusion must be reported on Form 709.

Filing Form 709 is also mandatory for gifts of “future interest,” regardless of their value, because these do not qualify for the annual exclusion. If married couples elect to split gifts to combine their annual exclusions, each spouse must file their own Form 709 to report their half of the gift. Any reported gifts exceeding the annual exclusion begin to utilize the donor’s lifetime gift tax exemption, and Form 709 tracks this usage.

Recipient’s Tax Basis and Future Capital Gains

When stock is received as a gift, the recipient assumes the donor’s original cost basis for tax purposes, known as “carryover basis.” This means the recipient’s cost basis is typically the price the donor originally paid for the stock, not its fair market value on the gift date. This carryover basis directly impacts the recipient’s potential capital gains tax liability when they eventually sell the stock. If the stock has appreciated significantly since the donor acquired it, the recipient may face a larger capital gains tax upon sale than if they had inherited the stock.

The recipient’s holding period for the gifted stock also includes the donor’s holding period. This combined holding period is important for determining if a future sale results in short-term or long-term capital gains, which are taxed at different rates. In contrast, inherited stock typically receives a “stepped-up basis” to its fair market value on the donor’s death date, which can significantly reduce or eliminate capital gains tax for the inheritor upon sale.