How to Gift Stock: Tax Implications and Transfer Process
A comprehensive guide to gifting stock, detailing the transfer process and the important tax implications for both parties involved.
Gifting stock involves transferring ownership of shares from one individual to another. This method allows for the direct transfer of an asset that holds potential for future growth, rather than simply providing cash. Understanding the specific procedures and tax considerations associated with such transfers is important for anyone considering this type of financial gift. The complexities range from identifying the appropriate transfer mechanisms to navigating federal tax regulations that apply to both the donor and the donee.
Key Concepts and Annual Gift Exclusion
When stock is gifted, the individual providing the shares is known as the “donor,” and the person receiving them is the “donee.” The annual gift tax exclusion permits a certain amount to be gifted to any number of individuals each year without triggering federal gift tax reporting requirements or reducing one’s lifetime gift tax exemption. For the 2025 tax year, this annual exclusion amount is $19,000 per recipient. A donor can give up to $19,000 to each donee without reporting the gift to the Internal Revenue Service (IRS).
Married couples can combine their exclusions, allowing them to gift up to $38,000 to each recipient annually without reporting. Gifts made within this annual exclusion limit do not impact the donor’s lifetime gift tax exemption. This exclusion simplifies the gifting of smaller amounts and ensures that most gifts between individuals do not result in tax implications or administrative burdens. For instance, giving $19,000 in stock to multiple grandchildren in a single year would not require gift tax reporting.
Preparing for Stock Gifting
Before initiating a stock transfer, the donor must gather specific information. Identifying the exact stock to be gifted is the first step, which includes knowing the company name, its ticker symbol, and the precise number of shares intended for transfer.
Collecting donee details is also necessary. This includes their full legal name, current address, and Social Security Number (SSN) or Taxpayer Identification Number (TIN). This information aids accurate record-keeping and proper crediting of shares by the receiving brokerage. The donor must also ascertain the type of account the donee possesses or will open.
For adult donees, a standard individual brokerage account is used. If the donee is a minor, the stock must be transferred into a custodial account, such as a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. These accounts are managed by an adult custodian until the minor reaches the age of majority, which varies by state. How the donor holds the stock—whether in a brokerage account or as physical stock certificates—will dictate transfer procedures.
Executing the Stock Transfer
If stock is held electronically in a brokerage account, the transfer is initiated through the donor’s brokerage firm. This involves completing a Letter of Instruction or a gift transfer form provided by the broker. The donor will need to provide the donee’s account information, including the brokerage firm’s name and the donee’s account number.
Most electronic transfers between brokerage accounts use the Automated Customer Account Transfer Service (ACATS), which streamlines the movement of securities. The donee’s receiving brokerage initiates this transfer, which takes three to five business days to complete. This method is preferred due to its efficiency and reduced paperwork compared to physical certificates.
For stocks held as physical certificates, the process is different. The original stock certificate must be endorsed by the donor, requiring a signature guarantee from a financial institution. These physical certificates are then sent to the stock’s transfer agent, who is responsible for recording changes in ownership. Many brokerage firms now discourage or charge fees for issuing physical stock certificates, as the industry has transitioned to electronic record-keeping.
Tax Implications of Stock Gifts
Gifting stock carries specific tax implications for both the donor and the donee. For the donor, if the value of the gifted stock exceeds the annual exclusion amount of $19,000 per recipient, the excess amount counts against their lifetime gift tax exemption. For 2025, the lifetime gift tax exemption is $13.99 million per individual. Most donors will not owe gift tax unless their cumulative taxable gifts over their lifetime exceed this amount.
Even if no tax is due, gifts exceeding the annual exclusion require the donor to file IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. The donor is responsible for filing this form and paying any gift tax, not the donee.
For the donee, a key tax consideration is the “carryover basis” rule. The donee’s cost basis for the gifted stock is the same as the donor’s original cost basis, not the market value at the time of the gift. For example, if a donor bought stock for $10 per share and gifts it when it is worth $50 per share, the donee’s basis remains $10 per share.
When the donee sells the stock, capital gain or loss is calculated based on this carryover basis. The donee’s holding period for long-term or short-term capital gains also includes the donor’s holding period. If the stock has appreciated significantly, the donee will pay capital gains tax on the difference between the sale price and the donor’s original cost basis.