Gifting stock to a family member

[stevemp]

I was told I can gift up to $17000 in stock current value to a family member.  If the stock is held in a brokerage account that is only in my name, can my wife also gift $17000 since we file jointly?

[rjs · Accepted solution]

You can gift as much as you want to. There is no limit on gifts. But if you gift more than $17,000 (for 2023) to any one person, you have to file a gift tax return, Form 709. You will not have to pay any gift tax unless the total of all the gifts you have given in your lifetime is more than $12.9 million (for 2023), but you have to file the return.

The $17,000 gift tax exclusion, and the need to file a gift tax return, have nothing to do with your filing status or anything else on your income tax return. The rules apply to each giver individually. So you and your wife can each gift up to $17,000 to the same person without having to file a gift tax return.

However, if the gift is stock that was owned in your name, that is a gift from you. Your wife cannot gift stock from your brokerage account. You would first have to transfer the stock to her name. (Gifts between spouses are not subject to gift tax or the $17,000 limit, and a gift tax return is never required.)

You cannot file a gift tax return with TurboTax.

[Opus 17]

The gift tax exclusion is per person on both the giver and the recipient side.  So you and your spouse could each give $17,000 to one person (such as your child).  You could also give an additional $17,000 each to your child's spouse, if they are married.

As mentioned, gift tax is never actually owed unless your lifetime gifts and estate are more than $13 million.  The exclusion just determines whether or not you need to file a form.  If you want to give a larger gift, you just need to fill out form 709 and mail it to the IRS, you won't actually owe tax. 

[SteamTrain]

I think you will need to let the recipient(s) know the "basis" for any stocks you gift to them too.

I'm pretty sure a stepped-up basis does not apply to gifted stocks, and they will have to use your basis if the recipient sells the stock at some future date.  The brokerages involved may or may not have/transfer that basis.

@Opus 17   @rjs    Am I correct here?  Or off base with this advice? 

[Opus 17]

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@SteamTrain wrote:

I think you will need to let the recipient(s) know the "basis" for any stocks you gift to them too.

I'm pretty sure a stepped-up basis does not apply to gifted stocks, and they will have to use your basis if the recipient sells the stock at some future date.  The brokerages involved may or may not have/transfer that basis.

@Opus 17   @rjs    Am I correct here?  Or off base with this advice? 

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Completely agree.  Whenever the recipient sells the stock, the capital gains will be the difference between the sales proceeds and the owner's cost basis.  Cost basis is (more or less) the amount of already-taxed money that was invested in the property.  In the case of a gift, the recipient gets the cost basis of the giver.

For stocks, the cost basis of the giver is usually what the giver paid when they bought the stock, but basis can be affected by splits and reverse splits, as well as by dividend reinvestment.  The broker will usually keep track of basis for the stockholder.

If the parent here gifts the stock by opening a new account in the child's name with the same broker, and transfers the stock that way, the broker should also transfer the basis information.  But if the stock will be moving brokers, the basis information might not be transferred.  Certainly the new owner/recipient should ask whether their broker is tracking the basis or whether they need to do it.  When the new owner sells their shares, they will need to indicate the basis.  If they are audited by the IRS and can't prove the basis with adequate records, the IRS can assign any basis they think is reasonable, which could result in higher capital gains tax. 

[Anonymous_]

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@Opus 17 wrote:
Whenever the recipient sells the stock, the capital gains will be the difference between the sales proceeds and the owner's cost basis. 

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That is not necessarily the case in all instances. The donee (recipient) should know the fair market value of the shares on the date of the gift as well as the donor's cost basis.

See https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/prope...

It should be noted that it is generally not a great idea for a donor to gift someone shares in which the donor has an unrealized loss. 

EX: Donor paid $20,000 for shares that have declined to $17,000 (FMV) on the date of the gift. Donee later sells the shares for $16,000, a loss of $1,000 (difference between FMV and the sale price). Result is that Donor's unrealized loss of $3,000 disappears forever (Donor would have been better off selling the shares to recognize the loss and then gifting the $17,000 in cash to Donee).