Helping an adult child buy a home, supporting a parent, or passing wealth to the next generation often starts with a simple question: Where should the money come from?

If you own stock that has increased substantially in value, selling shares and giving the proceeds may seem straightforward. But transferring the shares directly can sometimes leave more money in your family’s hands.

The right approach depends on your tax situation, the recipient’s circumstances, and what you want the gift to accomplish.

Your cost basis goes with the shares

An outright gift of stock from a taxable brokerage account generally does not trigger capital gains tax for you, and the recipient generally does not owe income tax simply for receiving it. Gift tax reporting is a separate consideration.

The recipient usually takes over your cost basis—the amount used to calculate a taxable gain—and your holding period.

For example, suppose you purchased shares for $10,000 that are now worth $40,000. If you give those shares to your daughter and she sells them for $40,000, she generally reports a $30,000 capital gain.

If you held the shares for more than a year, that holding period carries over. Her sale generally qualifies for long-term capital gains treatment even if she sells shortly after receiving them.

The potential benefit comes from who eventually reports the gain and the tax rate that applies.

When gifting shares can save the family money

Giving appreciated stock can be particularly useful when the recipient’s capital gains tax rate is lower than yours.

For most publicly traded stock held long term, federal capital gains rates are 0%, 15%, or 20%, depending on taxable income. Some taxpayers also owe the 3.8% net investment income tax, bringing the combined federal rate to 23.8%. State taxes may add to the cost.

An adult child with lower taxable income may therefore owe less on the same gain. But the calculation needs to include the gain itself: a large sale can push some of the gain into a higher capital gains bracket.

Before transferring shares, compare the expected tax under both approaches. Include available capital losses and the recipient’s plans for selling.

Also consider what the money is for. Someone using the gift for a down payment next month has different needs from someone investing it for the next decade. A tax advantage should be weighed alongside the risk of the stock declining before the money is needed.

Choose the shares deliberately

If you bought the same stock at different times, you may own several groups of shares, or tax lots, with different cost bases.

For a gift of the same market value, shares with a higher basis generally leave the recipient with a smaller unrealized gain. Lower-basis shares may still make sense when the recipient can realize the gain at a favorable tax rate.

Shares worth less than you paid deserve separate consideration. Selling them and giving cash may allow you to use the capital loss, subject to the usual tax rules. If you give them away instead, the recipient generally uses their value on the gift date to calculate a later loss. Your existing unrealized loss does not carry over as a deductible loss.

Understand the gift tax reporting rules

For 2026, the federal annual gift tax exclusion is $19,000 per recipient, per donor. A married couple can generally give a combined $38,000 to the same person using both spouses’ exclusions. Count other gifts to that person during the year as well.

Giving more than the annual exclusion generally requires the donor to file Form 709. It does not automatically mean gift tax is due. The excess usually uses part of the donor’s remaining lifetime gift and estate tax exemption, which is $15 million per person in 2026.

A gift tax return is generally due April 15 of the following year, subject to extensions and other applicable rules. Electing to split gifts with a spouse also requires gift tax reporting, even when no tax is payable.

For publicly traded shares, the gift’s value is generally based on the average of the high and low trading prices on the gift date. That value can differ from the closing price shown on an account statement.

Gifts to children require additional care

A child’s low income does not necessarily mean a low tax rate on gifted stock.

Under the “kiddie tax” rules, certain investment income can be taxed using the parents’ rates. These rules can apply to children under 18, some 18-year-olds, and certain full-time students under 24, depending on earned income, support, and other requirements.

Account ownership matters too. A gift to a UTMA or UGMA custodial account belongs to the child and is irrevocable. The child becomes entitled to control the assets when the custodianship ends under applicable state law.

Before choosing an account, consider the purpose of the gift, when the child should have access, and how much control you want to retain.

Compare giving now with leaving an inheritance

Appreciated stock deserves particular attention in an estate plan.

Stock inherited at death generally receives a cost basis adjustment to its fair market value at that time, subject to exceptions. For appreciated shares, this can eliminate the unrealized gain accumulated during the original owner’s lifetime. A lifetime gift generally preserves the existing basis instead.

That can favor retaining certain low-basis shares for inheritance, particularly when estate taxes are unlikely to be a concern.

Still, taxes are only part of the decision. Helping someone buy a home or gain financial stability today may be more valuable to your family than a future tax benefit. Your own financial security, potential estate taxes, and the risk of holding a concentrated stock position also deserve consideration.

Complete the gift before a sale becomes committed

Timing matters when a sale, merger, or other transaction is already underway.

If the right to receive sale proceeds has effectively become fixed before the gift, the IRS may attribute the gain to you even if the shares change hands before the transaction closes. A last-minute transfer may therefore fail to produce the intended tax result.

Discuss any pending transaction with your tax advisor before transferring the shares.

For year-end gifts, allow time for brokerage processing and confirm when the transfer is completed. Submitting instructions near December 31 can leave little room to resolve delays.

Before you transfer shares

A few questions can help make the decision clearer:

• What do you want the gift to accomplish?
• Will the recipient sell the shares soon or hold them?
• What would each of you owe if you sold the same shares?
• Which tax lots best fit the plan?
• Would giving cash or retaining the shares for inheritance better serve your goals?
• What records and gift tax filings will be needed?

Keep the cost basis, acquisition dates, transfer confirmation, and gift valuation records. Make sure the recipient has the information needed to report a future sale correctly.

At Bishop Capital Advisors, we help clients evaluate these decisions alongside their investments, cash needs, and estate plans. We coordinate with their CPA and estate attorney to determine what to give, which shares to use, and when to make the transfer.

This article discusses general U.S. federal tax rules and is for informational purposes only. Tax treatment depends on individual circumstances, and state rules may differ. Consult your tax and legal advisors before implementing a gifting strategy. This article does not constitute personalized investment, tax, or legal advice, or an offer to buy or sell any security. The strategies discussed may not be appropriate for everyone. Investing involves risk, including possible loss of principal. Tax laws and regulations are subject to change, and their application depends on individual circumstances. Consult your investment advisor, tax professional, or attorney, as appropriate, before implementing a strategy. Examples and tax assumptions are hypothetical and provided solely for illustration. Actual costs, taxes, and outcomes will vary based on individual circumstances.