The Upshot of Gifting Appreciated Stock

May 16, 2024
A look at the potential tax advantages of gifting appreciated stock to new grads.

With the end of the school year upon us, family and friends are contemplating what to give the high school and college grads in their lives. Cash is a common choice, but those who want to give a more purposeful gift might instead consider shares in a company.

"Stock is a symbolic gift as well as a financial one," says Susan Hirshman, director of wealth management for Schwab Wealth Advisory and the Schwab Center for Financial Research. "It says, 'I think you're mature enough to navigate and enhance your knowledge in the world of investing.' Plus, if you gift them appreciated stock from your own portfolio, you both can potentially benefit."

  • For the grad, receiving appreciated stock can be a lesson in financial literacy. "Don't just transfer the shares—explain what you paid for them, how much they're worth today, and why you think the stock could be a good holding," Susan says.

It's also an opportunity to discuss the tax consequences of selling. "The recipient will inherit the giver's original cost basis and holding period, so if the stock has significant gains, the recipient will be on the hook for the accompanying taxes should they choose to sell," Susan notes. Fortunately, a young person who is independent is likely to have a low capital gains tax rate—possibly even 0% if their income falls within the lowest bracket (under $47,025 for single filers in 2024) when they sell and if the shares have been held longer than a year cumulatively by the original owner and the recipient.

  • For the giver, the advantage can be twofold: "Not only could you avoid capital gains taxes, but you could also remove potential appreciation from your estate, which is important if you're worried about estate taxes," Susan explains. However, if the value of the shares exceeds the annual gift tax limit ($18,000 per recipient in 2024), the excess amount will count against your lifetime gift and estate tax exemption ($13.61 million per individual in 2024).

Despite the many benefits of gifting appreciated stock, there are caveats:

  • The kiddie tax applies to full-time students under the age of 24 (at the end of the calendar year) who don't have enough earned income to cover at least 50% of their own living and education expenses. In those cases, unearned income (such as dividends or interest payments from the gifted assets) that exceeds $2,600 in 2024 is subject to their parents' income tax rate.
  • Financial aid calculations—which treat up to 20% of the assets owned by a dependent student as available to pay for college—may be affected by the gift. Likewise, up to 20% of their income (such as from the sale of the assets) in excess of $9,410 will be included in the calculations for the 2024–2025 academic year.

"The kiddie tax may not be a concern if the shares don't throw off a lot of income, but financial aid repercussions should definitely be a consideration," Susan says. "A tax advisor can help you think through the most tax-efficient way to gift assets."

Help your new grad open a Schwab brokerage account.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

Schwab Wealth Advisory™ ("SWA") is a non-discretionary investment advisory program sponsored by Charles Schwab & Co., Inc. ("Schwab"). Schwab Wealth Advisory, Inc. ("SWAI") is a Registered Investment Adviser and provides portfolio management for the SWA program. The Wealth Advisor, Associate Wealth Advisor, and other representatives making investment recommendations in your Schwab Wealth Advisory accounts are employees of Schwab Wealth Advisory, Inc.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

0624-MAKU