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There’s something profoundly fulfilling about sharing wealth with loved ones or causes you hold dear. Gifting securities—stocks, bonds, and other financial assets—can be both a generous gesture and a savvy financial strategy. But before transferring ownership, it’s essential to understand the complex tax landscape surrounding these gifts. This guide will equip you with actionable insights to navigate federal rules in 2025 and craft a plan that honors your legacy while optimizing tax outcomes.
At its core, the gift tax regime regulates how much you can transfer without incurring a tax liability. Two key numbers define your capacity:
You must file IRS Form 709 to report gifts exceeding the annual exclusion, even if you ultimately owe no tax because you remain below the lifetime exemption. Remember, gifts between U.S. citizen spouses are unlimited and tax-free, providing a powerful planning tool for married couples.
One of the greatest advantages of gifting securities is that the donor avoids immediate capital gains tax on appreciated assets. However, the recipient inherits both the cost basis and holding period established by the donor. If they sell the asset, they will owe tax on the total gain from the original purchase price to the sale price.
For example, if you purchased shares for $7,000 and gifted them when worth $12,000, the recipient’s cost basis remains $7,000. If they later sell at $15,000, their taxable gain is $8,000. Conversely, special rules apply when falling below cost: gains use the donor’s basis, but losses are measured against the lower of the donor’s cost basis or the market value at the gift date.
This carryover basis regime can be advantageous if your recipient is in a lower capital gains bracket. Choosing to transfer appreciated shares rather than selling then gifting cash could yield significant tax savings across households.
Proactive gifting serves dual purposes: providing immediate benefits to loved ones and reducing the value of your taxable estate. By removing future appreciation from your estate, you preserve more wealth for heirs and potentially minimize federal estate taxes.
At death, heirs typically receive a step-up in cost basis at death to the fair market value on the date of your passing. This reset can eliminate capital gains accumulated during your lifetime—so if you’re considering large gifts or holding onto highly appreciated assets, balancing lifetime transfers with anticipated step-up benefits is crucial.
If you gift securities to children under age 24 who are full-time students, unearned income above $2,600 in 2024 is taxed at the parent’s marginal rate under the “kiddie tax.” This rule applies to dividends and sale gains, potentially reducing the benefit of early transfers to young heirs.
Charitable gifting of publicly traded securities provides another compelling avenue. You can claim a qualified charitable deduction benefits equal to the full fair market value of long-held assets donated directly to a qualified charity. This strategy eliminates capital gains tax on appreciated values and often yields a larger deduction compared to selling securities and donating cash.
While federal rules set the groundwork, some states impose their own gift, estate, or inheritance taxes with rates up to 10%. The interplay between state and federal law can affect planning outcomes, so reviewing your home state’s provisions is vital. Additionally, current law’s elevated exemptions are set to revert in 2026, potentially cutting the federal lifetime exemption by roughly half (adjusted for inflation). High-net-worth individuals may seize this window to lock in larger transfers before thresholds shrink.
A thoughtful gifting strategy enhances both emotional fulfillment and tax efficiency. Consider these practical planning strategies to guide your decisions:
For gifts exceeding $19,000 per recipient, ensure timely filing of Form 709. Keep clear records of security valuations on gift dates, cost basis documentation, and gift split agreements if married couples elect to share annual exclusions.
Below are typical situations illustrating the mechanics and tax outcomes of gifting securities:
Gifting securities weaves together generosity and prudence, offering a pathway to support loved ones, fuel causes you cherish, and craft a lasting legacy. By mastering the nuances of gift tax thresholds, capital gains carryover, and charitable deductions, you can make gifts that resonate financially and emotionally.
As you consider your goals for wealth transfer, remember to stay abreast of evolving rules and consult experienced advisors. With careful planning, your gifts today can provide security, joy, and inspiration for generations to come.
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