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If you're wondering if you can give stock to a relative or friend, the answer is yes. In fact, doing so can provide some tax benefits. However, there are a few important things to understand when you gift somebody a stock. Here's what to think about before you complete such a transaction.
How Do You Give Stock as a Gift?
There are a few different ways you can give a loved one stock as a gift. The best process for you depends on how you're holding the stock:
- Transfer the stock to their brokerage account. If you're holding the stock in a brokerage account, you can gift it by simply transferring it to the recipient's brokerage account. If the recipient is a minor, a custodial account will need to be opened for them before you can make the transfer.
- Transfer the stock certificate. If you own a physical certificate signifying your stock ownership, there may be a form on the back of the document that allows you to transfer that ownership to your recipient.
- Buy the shares as a gift. Whether it's a single share, multiple shares or a fraction of a share, you can generally buy a stock as a gift for a loved one. Popular websites that offer this service include GiveAShare and Stockpile, but you can also do this through traditional brokers.
It's also possible to gift stock to a charitable organization or include it in your will to be transferred to your heirs upon your death.
Rules for Gifting Stock
If you're thinking about gifting stock, check with the broker or company that's facilitating the transaction to understand specific rules they might have about the process.
There's also the gift tax rule, but it's not likely you'll be impacted by it. This rule states that you can gift up to $11.7 million in your lifetime without paying taxes on it.
Each year, you can exclude the first $15,000 you gift per person from this total. In other words, if you have three children, you can gift up to $15,000 worth of stock and other monetary gifts per child—up to $45,000 total—without that counting toward your lifetime exemption. If you go over the $15,000 annual exclusion amount, you'll need to report the difference on your tax return for that year.
What to Consider Before You Gift Stocks
Giving stocks away as a gift has benefits as well as drawbacks. The most important benefit is that if the value of the stock has increased since you first purchased it, gifting it means you don't have to pay taxes on that gain. If you were to sell the stock and give your loved one the money, however, you'd pay taxes on the amount of the gain.
Note that the recipient's tax liability will depend on how you gift the stock. In most circumstances, their cost basis is the same as yours. So if you bought 100 shares of a stock at $10 and its price has increased to $20, your loved one would have to pay taxes on that gain if they sell the stock at that price.
On the other hand, if you bequeath your stock in your will, your loved one's cost basis will be the price of the stock on the date of your death. So if you bought at $10 per share and the price was $20 when you die, your loved one could sell the shares and pay no taxes.
If the price of the stock has gone down since you first bought it, it might make more sense to sell it and give your loved one the cash. This is because when you sell a stock at a loss, it can help reduce how much you pay in taxes for that year.
Is Gifting Stock a Good Idea?
Gifting stock to a loved one during the holidays, for their birthday or any other time of the year can be a great way to provide a present that can grow in value over time. It can be especially beneficial to younger children, who can take advantage of the gains once they enter adulthood years down the road.
However, it's important to understand how the process works and how you and your loved one might be impacted by the gift tax and capital gains tax, respectively.
Take your time to consider whether gifting stock is the right move for you and some of your alternatives before you take that step.