How to Give Stock as a Gift and the Tax Implications

Gifting stock can be a thoughtful way to provide financial support to loved ones, contribute to a child’s future, or facilitate wealth transfer across generations. This approach allows individuals to share the potential growth of investments, offering recipients a valuable asset that can appreciate over time. Understanding the process and implications helps ensure a smooth and beneficial transfer for both the giver and the recipient.

Methods for Gifting Stock

For gifting stock directly to an adult, both the giver and recipient need active brokerage accounts. The giver should gather the recipient’s full legal name, address, Social Security number, and brokerage account details.

When gifting to minors, specialized accounts such as Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts are used. These custodial accounts allow an adult to manage assets on behalf of a minor until they reach the age of majority, which varies by state but is between 18 and 25 years old. Once the minor reaches this age, control of the assets must be transferred to them, and they can use the funds for any purpose. The gift into an UGMA/UTMA account is irrevocable, meaning the assets legally belong to the minor once transferred.

For more complex or significant gifts, establishing a trust might be a suitable option. This usually involves legal counsel to draft the trust document and define its terms. A trust provides greater control over how and when the gifted assets can be accessed or used by the beneficiary.

Gifting stock that is not publicly traded, such as shares in a private company, requires unique considerations. These shares often have transfer restrictions and may require a formal valuation to determine their fair market value before a gift can be completed. Transfers of private stock involve extensive documentation and legal review to ensure compliance with company bylaws and tax regulations.

The Stock Transfer Process

After selecting a gifting method and gathering information, the actual transfer of stock involves a series of procedural steps. The process begins by contacting the brokerage firm where the stock is held. Brokerages require specific forms to initiate an “in-kind” transfer, which moves shares directly from the giver’s account to the recipient’s account without selling them.

Required documentation includes account numbers for both the giver and recipient, the number of shares being gifted, and the exact stock symbol. For certain transfers, especially those involving physical stock certificates or significant values, a medallion signature guarantee may be required to verify signature authenticity. This guarantee helps prevent fraudulent transfers and is obtained from financial institutions like banks or credit unions.

Most transfers between brokerage accounts are processed electronically through systems like the Automated Customer Account Transfer Service (ACATS), which can take three to six business days to complete. For transfers that cannot use ACATS, such as gifts of private stock, the process may be manual and take longer, up to a month. After the transfer is complete, both the giver and the recipient should receive confirmation statements from their brokerage firms.

Tax Considerations for the Giver

Gifting stock has specific tax implications for the giver. The Internal Revenue Service (IRS) provides an annual gift tax exclusion, which for 2025 is $19,000 per recipient. An individual can gift up to this amount to as many people as they wish each year without incurring gift tax or needing to report the gift to the IRS. Married couples can double this exclusion.

If the value of gifted stock exceeds the annual exclusion amount, the excess amount begins to use up the giver’s lifetime gift tax exemption. For 2025, the lifetime gift and estate tax exemption is $13.99 million per individual. This unified credit shields wealth from federal gift and estate taxes over a person’s lifetime or at death. Any gifts exceeding the annual exclusion reduce this lifetime exemption, but no gift tax is due until cumulative gifts surpass the lifetime limit.

The giver is responsible for paying any gift tax, not the recipient. Even if no tax is owed because the lifetime exemption covers the gift, a gift tax return, Form 709, must be filed with the IRS for any gifts exceeding the annual exclusion. This form reports the gift and tracks the amount of lifetime exemption used. Gifting stock does not provide an income tax deduction for the giver, as it is considered a transfer of wealth rather than a charitable contribution or business expense.

Tax Considerations for the Recipient

For the individual receiving gifted stock, the immediate tax implications are favorable. The recipient does not pay income tax on the value of the stock at the time of receipt.

A tax rule for recipients involves the “carryover basis.” When stock is gifted, the recipient’s cost basis for tax purposes is the same as the giver’s adjusted basis. For example, if the giver bought the stock for $50 per share, that $50 per share becomes the recipient’s basis, regardless of the stock’s market value on the gift date. This carryover basis influences the calculation of capital gains or losses when the recipient sells the stock.

Upon selling the gifted stock, the recipient calculates capital gains or losses based on this inherited basis. If the stock is sold for more than the giver’s original basis, a capital gain results. If sold for less, a capital loss occurs. The holding period for determining whether capital gains are short-term or long-term includes the time the giver owned the stock. This allows the recipient to qualify for lower long-term capital gains tax rates sooner.

A “double basis” rule applies if the stock’s fair market value (FMV) on the gift date was less than the giver’s original basis. If the recipient sells the stock for a price between the giver’s original basis and the FMV at the time of the gift, no gain or loss is recognized. If the sale price is below the FMV at the time of the gift, the FMV becomes the basis for determining a loss. Conversely, if the sale price is above the giver’s original basis, the original basis is used to determine a gain.

Valuing the Gifted Stock

Accurately determining the fair market value (FMV) of gifted stock is important for gift tax reporting purposes. For publicly traded stock, the FMV on the gift date is calculated by taking the average of the highest and lowest selling prices on that day. If the gift date falls on a weekend or holiday, the valuation is based on average prices from the nearest preceding and succeeding trading days. This methodology ensures a precise valuation for tax compliance.

Valuation for non-publicly traded or private stock is more complex due to the absence of a readily available market price. Such valuations often require a professional appraisal by a qualified expert. The appraiser considers factors including the company’s financial condition, earnings capacity, asset values, industry outlook, and any applicable discounts for lack of marketability or minority interest.

Accurate valuation directly impacts the amount reported for gift tax purposes and the tracking of the lifetime gift tax exemption. An incorrect valuation could lead to discrepancies with the IRS and potential penalties. Therefore, obtaining a thorough and well-documented appraisal for private stock is an important step in the gifting process.