# How Do You Value a Gift of Stock?

## Key Points

• A gift of stock is valued differently for gift and income tax purposes
• Gift tax liability is based on fair market value at the time of the gift.
• Income tax liability (when the recipient sells) is based on both cost basis and holding period.

Dear Carrie,

Am I right to assume that, for determining gift tax liability, the value of a gift of stock is the cost basis?

I'm glad you asked this question because gifts of stock can raise a lot of tax issues. That's because there are different ways of valuing stock depending on whether it's for gift or income taxes.

While your question is specifically about gift tax valuation, I'm going to expand my answer a bit. The gift tax liability applies only to a donor who gives more than \$14,000 to any one person in a given year. The recipient of a gift doesn’t pay a gift tax, but when he or she decides to sell the stock, they have to calculate a value for income tax purposes.

## Valuing stock for gift tax purposes

The simple answer to your question is no, the value of a gift of stock for gift tax liability is NOT the donor's cost basis, but rather the fair market value of the stock at the time the gift is given. So let's say you purchased 100 shares of XYZ stock at \$50 a share. Your cost basis is \$5,000. Now the stock is \$80 a share and you give it as a gift. The value of your gift for gift tax purposes is \$8,000.

In 2015, you can give up to \$14,000 to an unlimited number of individuals each year without paying a gift tax or even reporting the gifts. If you give over that amount to any individual, however, you must report the gift on your tax return, but you don't have to pay taxes until you give away more than the current lifetime limit of \$5,430,000—for the amount above and beyond \$14,000 per person per year. So in the example above, there would be no gift tax liability. However, if the stock happened to be \$150 a share, the value of the gift would be \$15,000. You'd then have to report it and \$1,000 would be applied toward your \$5,430,000 lifetime exclusion.

## Valuing a gift of stock for income taxes

The recipient doesn’t have to worry about gift taxes. It's when the recipient decides to sell the stock that the issue of valuation comes up—for income taxes. And this is where things can get a bit more complicated.

In general, when valuing a gift of stock for capital gains tax liability, it's the donor's cost basis and holding period that rules. As an example, let's say you receive a gift of stock from your grandfather. He bought it for \$10 a share and it's worth \$15 a share on the day you receive it. If you then sell the stock, whether for a gain or a loss, your cost basis will be the same as your grandfather’s: \$10 per share. Sell it at \$25 and you'll pay tax (at the short- or long-term rate, depending on how long he owned the stock) on a gain of \$15 a share; sell it at \$8 and your capital loss will be \$2 a share.