Gifting Stocks

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As the holiday season is approaching, what better time to examine the topic of gifting stocks.

To review, the annual gift limit for 2018 is $15,000 per person, or $30,000 per couple. While most gifts are made in cash, property can also be gifted, including investment assets. Many clients prefer to gift appreciated individual stocks, due to its tax advantages.

When gifting appreciated stock,you get the full value of the gift, but are able to avoid having to pay the capital gains tax due when selling the shares.

However, keep in mind that while you avoid the tax consequences associated with the stock, the recipient of your gift assumes both the cost basis and holding period of your position. So,when that individual decides to sell the shares, they will essentially incur the same (likely large) capital gains tax that you were able to forego.

Let’s say you were fortunate enough to be an early investor in Amazon stock, and paid $500 for shares that are now worth $15,000. If the recipient of your gift sold the shares, he or she would be responsible for paying capital gains tax on $14,500.

Also, be aware that if this gift is made to a younger individual, some additional taxes can often apply. Investments exceeding $2,100 and given to children under age 19 or college students 24 and younger are taxed at trust rates, with the top bracket of 37% kicking in at income of only$12,500.

However, if you were to hold the appreciated shares until your death, the same beneficiary would then get a step-up in cost basis to the value of the shares on your date of death. Continuing the above example with Amazon, the individual would inherit them at a cost basis of $15,000, and therefore have no embedded capital gain in the shares.

Remember that in addition to gifting appreciated stocks to individuals, they can also be donated to charities as well.

If you donate appreciated stock that you’ve held for more than a year to a “public” charity – such as an educational or religious institution – you can typically take a tax deduction for the full fair market value of the stock, up to 50% of your adjusted gross income for that year.

The charity will be able to provide you the information so that you can electronically transfer the shares from your current account custodian.

David Novak, CFP® is a Certified Financial Planner™ at Novak & Powell Financial Services in Pinellas County. Please note: he is not an attorney and this article should not be construed as one offering legal advice. For information about investment decisions and financial planning, contact him at (727) 451-3440.


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