How to Gift Someone Stocks and the Tax Rules

Gifting stocks can support a loved one’s financial journey, fostering literacy and providing a foundation for future security. Whether for a young adult starting an investment portfolio or as part of a family wealth transfer strategy, understanding the process is important. This approach allows for direct ownership transfer, potentially offering a more impactful gift than cash.

Key Tax Considerations for Givers

Understanding tax implications is a primary consideration when gifting stocks. The IRS imposes rules on gifts that givers should know. The annual gift tax exclusion allows an individual to give up to $19,000 per recipient in 2025 without triggering gift tax reporting or reducing their lifetime exemption. Married couples can combine their exclusions, effectively gifting up to $38,000 per recipient annually.

Gifts exceeding this annual exclusion count against the giver’s lifetime gift tax exemption, which is $13.99 million per individual for 2025. If a gift surpasses the annual exclusion, the excess reduces this lifetime exemption. No actual gift tax is owed until cumulative lifetime gifts exceed this amount. This unified exemption applies to gifts made during life and assets transferred at death.

The stock gift’s value for tax purposes is its fair market value (FMV) on the gift date. For publicly traded stocks, FMV is generally determined by averaging the highest and lowest selling prices on the transfer date. This valuation method ensures a consistent basis for tax calculations.

An important tax concept for gifted stocks is the “carryover basis” rule. The recipient generally assumes the giver’s original cost basis in the shares. For example, if stock bought for $10 is gifted when worth $100, the recipient’s cost basis for future capital gains calculations remains $10. This differs from inherited stocks, which receive a “step-up in basis” to the FMV on the original owner’s death, often resulting in lower capital gains taxes for the heir upon sale. This inherited basis directly impacts the recipient’s potential tax liability when they sell the shares.

Preparing for the Stock Transfer

Several preparatory steps are necessary to ensure a smooth stock transfer. Givers should select specific stocks, considering their value relative to the annual gift tax exclusion and original cost basis. Appreciated stocks can benefit the recipient due to carryover basis rules. Depreciated stocks might be better sold by the giver to realize a tax loss before gifting the cash proceeds.

Gathering precise recipient information is essential. This includes their full legal name, current mailing address, and Social Security Number (SSN) or Taxpayer Identification Number (TIN). Accurate details are necessary for compliance and record-keeping by brokerage firms.

The recipient’s account type dictates part of the transfer process. If they have an existing brokerage account, the giver needs specific details like the account number, broker-dealer name, and potentially the DTC number for electronic transfers. If no account exists, the recipient must open one, which involves an application and identification.

For gifting to a minor, a custodial account under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) is generally established. A custodian manages these accounts for the minor’s benefit until they reach the age of majority. Setting up a custodial account requires specific forms and information.

The method of holding the stock also influences the transfer. Stocks held directly with a transfer agent (e.g., physical certificates) follow a different process than those held digitally in a brokerage account. Brokerage firms and transfer agents provide specific forms for transfers, such as a “Gift of Securities Form” or “Letter of Authorization.” These forms require details like the stock ticker, number of shares, giver’s account, and recipient’s account.

Transferring the Stocks

Once preparatory steps are complete and information gathered, stock transfer can begin. For stocks held in a brokerage account, the most common method is an electronic, in-kind transfer from the giver’s account to the recipient’s. This involves submitting a “Gift of Securities Form” or similar instruction to the giver’s brokerage firm. Many brokerages allow electronic, mail, or in-person submission. Electronic transfers between accounts typically take several business days to a week to process.

If stock is held as physical certificates, the transfer process is more involved. The giver endorses the stock certificate or completes a separate stock power form. A medallion signature guarantee, a special stamp verifying signature authenticity, is often required. Physical certificates and required forms are then mailed to the transfer agent or recipient’s brokerage firm.

Stocks held in the Direct Registration System (DRS) can also be transferred. DRS allows investors to hold securities electronically directly with the issuing company’s transfer agent, without physical certificates or a brokerage account. DRS transfers involve contacting the transfer agent and providing instructions, similar to physical certificates but without physical delivery.

After submitting the transfer request, both giver and recipient should confirm its successful completion. This can be done by checking brokerage statements or contacting their firms. Confirmation ensures shares have moved from giver’s ownership to recipient’s and are properly recorded.

Reporting Requirements

After the stock transfer, givers have specific reporting requirements, especially if the gift value exceeds the annual exclusion amount. The primary form for reporting gifts to the IRS is Form 709, the United States Gift and Generation-Skipping Transfer Tax Return. This form is required if the total value of gifts made to any one individual in a calendar year exceeds the annual gift tax exclusion of $19,000 for 2025.

The responsibility for filing Form 709 rests solely with the giver, not the recipient. The filing deadline for Form 709 is April 15th of the year following the calendar year in which the gift was made. For example, a gift exceeding the annual exclusion made in 2025 would require Form 709 by April 15, 2026. This form tracks cumulative gifts that reduce the giver’s lifetime gift tax exemption.

The recipient of a stock gift does not owe income tax on the gift itself. Gifts are considered transfers of wealth, not income, and are not subject to income tax for the recipient. Therefore, the recipient has no reporting requirements to the IRS solely for receiving the gift.

However, the recipient’s responsibilities arise when they sell the gifted stock. As noted, the recipient inherits the giver’s original cost basis. When the recipient sells the stock, any capital gain or loss is calculated based on this inherited basis and the sale price. Recipients must maintain accurate records of the gift, including the gift date and the giver’s original cost basis. These records are essential for accurately reporting capital gains or losses on future income tax returns.