Tax Implications of Gifting Shares to Family: A Guide

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Gifting shares to your family members can strategically transfer wealth while reducing your tax burden. However, it's important to understand the tax implications of gifting shares to family.

The IRS has specific rules governing these transactions, and failing to follow them correctly can lead to unexpected tax consequences for both you and your recipients. Here's everything you need to know about the tax implications of gifting stock.

Can You Gift Stock Shares to a Family Member?

Yes, you can gift stock shares to family members.

From a mechanical perspective, the process is straightforward - you can transfer shares directly from your brokerage account to the recipient's account through a transfer request.

Most brokerage firms have specific forms for this purpose. If the recipient doesn't have an account with your brokerage, they'll typically need to open one to receive the shares.

Is Gifting Shares to Family Taxable?

When you give shares to family members without getting money or value in return, the IRS calls this a gift. If you sell shares to family for less than they're worth, the IRS sees the price difference as a gift.

For example, selling $15,000 worth of stock to your child for $5,000 means you've made a $10,000 gift. This matters because gifts and sales follow different tax rules.

Gifting shares to family members is not immediately taxable to the recipient and can be a great estate-planning strategy as well as a way to support your loved ones.

Many people do it for these common reasons:

Estate planning: Reduce your taxable estate by transferring wealth during your lifetime.
Tax advantages: Family members in lower tax brackets may pay less tax when they sell the shares.
Teaching investing: Help family members learn about financial responsibility
Supporting needs: Fund education, housing, or other expenses without immediate tax impact

However, there are a few important tax implications you should be aware of, including a gift tax, capital gains taxes, and income taxes.

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What Are the Tax Implications of Gifting Shares to Family?

There are three main types of taxes to consider: gift tax, capital gains tax, and income tax. Each works differently and affects both the giver and the receiver in various ways.

Gift Tax

The gift tax applies to the person giving the shares, not the person receiving them. Here's what you need to know:

Annual Exclusion: In 2025, you can gift up to $19,000 worth of shares to each person every year without paying gift tax or filing a gift tax return. Married couples can combine their exclusions to give up to $38,000 per recipient.
Lifetime Exemption: Even if you give more than the annual amount, you might not owe actual tax right away. That's because you have a lifetime gift tax exemption (currently $13.99 million in 2025). Gifts over the annual limit just count against this lifetime amount.
Reporting Requirements: If you give more than $19,000 in shares to one person in a year, you need to file Form 709 (Gift Tax Return) with the IRS. This doesn't mean you'll pay tax - it just means the IRS tracks these larger gifts against your lifetime gift tax exclusion. Keep in mind that the IRS adjusts these numbers for inflation every year.
Valuation: The gift's value is the fair market value of the shares on the date of the gift. For publicly traded stocks, this is typically the average of the high and low trading prices that day.

Overall, try to take advantage of your annual gift tax exclusion so that your gift stock doesn't count against your lifetime gift tax exemption. If you go over, it can complicate your estate taxes later.

Capital Gains Taxes

Capital gains tax affects what happens when shares are eventually sold. This is important to understand because gifting shares transfers your original cost basis to the recipient.

When you gift shares, the recipient takes your original purchase price (cost basis). This is different from inheritance, where heirs get a "stepped-up" basis to the market value at death.

In other words, if you were to give your son $9,000 worth of stock purchased three years earlier for $3,500, they would be liable to pay capital gains taxes on a profit of $5,500 should they sell right away.

Sometimes, it's better to gift shares with a higher cost basis and keep shares with a lower basis for potential step-up treatment at inheritance.

Income Tax

Income tax considerations apply mainly to any earnings the shares generate after being gifted. So, they're the tax liability you need to worry about after the transfer is complete.

Once you gift the shares, any dividends they generate belong to the recipient. These dividends will be taxed at the recipient's tax rate, which might be lower than yours.

Be careful when gifting dividend-paying shares to children under 18 (or 24 for full-time students). Under the "kiddie tax" rules in 2025, investment income above $2,600 may be taxed at the parents' higher rate.

For high-income recipients, investment income, including dividends and capital gains, may trigger the 3.8% Net Investment Income Tax.

The Internal Revenue Service (IRS) can adjust these numbers for inflation, so make sure to double-check the specific thresholds.

Special Situations

Gifting Appreciated Stock vs Depreciated Shares

When deciding which shares to gift, consider whether they've gone up or down in value since you bought them.

For appreciated stock (shares worth more than you paid), gifting makes sense in many cases. The recipient gets your original cost basis but may pay less in capital gains tax than you would if they're in a lower tax bracket. This works well when gifting to adult children or relatives with lower incomes.
For depreciated shares (shares worth less than you paid), gifting is usually not the best move. If you sell these shares yourself, you can claim the capital loss on your taxes to offset other gains. This tax benefit disappears if you gift the shares. Instead, consider selling the depreciated shares, claiming the tax loss, and then gifting the cash if you want to help a family member.

If you're ever in doubt, work with a trusted tax advisor to figure out what makes the most sense when thinking about giving stock as a gift.

Using Trusts for Share Gifting

Trusts can potentially give you more control over gifted shares. In certain situations, they also come with additional tax benefits.

When you place shares in a trust for family members, you can set rules about when and how the shares or proceeds can be used. This is helpful if you're gifting to minors or beneficiaries who might need guidance with their financial management.

Here are a few different types of trusts that you can consider for share giving:

Revocable trusts don't offer tax advantages but provide control and avoid probate.
Irrevocable trusts can remove assets from your estate for tax purposes while still creating a structure for how the shares are managed.
Grantor Retained Annuity Trusts (GRATs) can be effective for transferring shares that you expect to appreciate significantly and minimizing the gift tax.

You can also gift shares to a 529 plan instead of directly to your child. This strategy provides tax-free growth if the funds are used for qualified education expenses (such as college tuition).

Related Article | At What Net Worth Do I Need a Trust?

Timing Considerations

When you gift stock matters almost as much as what you gift.

The $19,000 annual gift tax exclusion resets each calendar year. If you plan to gift shares worth more than this amount, consider splitting the gift across December and January to use two years' worth of exclusion.

You should also consider market conditions when gifting. In a down market, you can transfer more shares within the annual gift exclusion limit. This can work well if you expect the shares to recover and grow.

Who Pays Taxes on Gifted Shares?

The responsibilities are typically split between the giver and receiver.

As the giver, you may need to file a gift tax return if the shares exceed the annual exclusion amount, but you likely won't pay actual gift tax unless you've used up your lifetime exemption. You won't owe capital gains tax on appreciation when gifting shares.

The recipient doesn't pay any tax when receiving the gift but becomes responsible for all future taxes on the shares. This includes paying capital gains tax (using your original cost basis) when they sell the shares and paying income tax on any dividends the shares generate after the transfer.

So, Is It Better to Gift Stock or Cash to Family?

Gifting stock often provides more tax advantages than gifting cash, but it ultimately depends on your particular financial situation and goals.

When you gift appreciated stock, you transfer the tax liability on those gains to the recipient, who may be in a lower tax bracket. This creates pretty much immediate tax savings.

Gifted stock will also likely continue to grow in value, which creates more long-term benefits than a fixed cash amount.

However, cash gifts make more sense when you own depreciated stock (sell the stock, capture the tax loss yourself, then gift the cash) or when the recipient needs the money right away to cover an emergency expense.

FAQs

Can I Give Shares to Avoid Tax?

Gifting shares can be a legitimate tax planning strategy, but it doesn't eliminate taxes completely - there's virtually no strategy that can do that. You can avoid capital gains tax by gifting appreciated shares instead of selling them, but the recipient will eventually pay capital gains tax using your original cost basis when they sell. The IRS closely monitors large gifts, and attempting to avoid taxes through improper gifting can trigger penalties. That said, a qualified advisor can help you minimize tax liability.

Does Transferring Shares Trigger Capital Gains?

No, gifting shares doesn't trigger capital gains tax at the time of transfer. You're not selling shares, you're gifting them, so neither you nor the recipient pays capital gains tax at that moment. The potential capital gains tax is essentially deferred until the recipient eventually sells the shares. At that point, the recipient will use your original cost basis (what you paid for the shares) to calculate their taxable gain.

Can Grandparents Gift Shares to Grandchildren?

Yes, grandparents can gift shares to grandchildren using the same rules that apply to any other family member. Each grandparent can give up to $19,000 (in 2025) worth of shares annually to each grandchild without filing a gift tax return. Keep in mind that gifts to minor grandchildren may be subject to the "kiddie tax" if the dividends and capital gains exceed certain thresholds, potentially causing this income to be taxed at higher rates.

Does Gifting Stock Reset Cost Basis?

No, gifting stock doesn't reset the cost basis. When you gift shares, the recipient inherits your original cost basis (purchase price) and holding period. This is very different from inherited stock, which does receive a "stepped-up" basis to the fair market value on the date of death. This means that when you gift stock, all of the built-in gains accumulated during your ownership will eventually be taxed when the recipient sells the shares.

How Much Stock Can I Gift Tax-Free?

In 2025, you can gift up to $19,000 worth of stock per recipient every year without triggering a gift tax or reporting requirements. Married couples can combine their exemptions to gift up to $38,000 to each recipient. Beyond these annual limits, gifts count against your lifetime gift and estate tax exemption, currently $13.99 million per individual in 2025. You won't have to pay tax on these larger gifts, but you'll have to file a gift tax return (Form 709) so that the IRS can track your use of the lifetime exemption. So, it might increase your tax liability later in life.

The Bottom Line

Gifting shares to family can be a great way to manage your estate and support your loved ones when you understand the tax implications of giving stock as a gift. As with any tax strategy, consult with a financial advisor or tax professional to make sure that your stock gift supports your overall goals.