does gifted stock get a step up in basis?

Does Gifted Stock Get a Step Up in Basis?

Asking "does gifted stock get a step up in basis" is common when planning transfers of securities between family members or beneficiaries. does gifted stock get a step up in basis is answered up front: generally no. Stock (and most other property) received as a gift takes the donor’s adjusted basis (carryover basis), while property received from a decedent at death normally receives a step‑up or step‑down to fair market value (FMV) at the date of death under IRC §1014. This article explains the rules, exceptions, practical tax planning points, and what recipients should document.

As of 2026-01-22, according to IRS guidance (including IRC §1014 and IRS Publication 551), U.S. federal tax law draws a clear line between lifetime gifts and transfers at death — with differing basis results for donees and heirs.

Key terms and concepts

Understanding basis and its adjustments is the foundation for answering does gifted stock get a step up in basis. Below are concise definitions of the most important terms.

• Cost basis: the original purchase price of an asset, adjusted for certain events (such as stock splits, return of capital, or improvements). For securities, cost basis typically equals what the purchaser paid plus commissions and adjustments.

• Adjusted basis: the cost basis after applying increases (capital improvements, certain taxes) and decreases (depreciation, nontaxable distributions). This is the number used to compute gain or loss on sale.

• Step‑up (and step‑down) in basis: an adjustment that sets an asset’s basis to its FMV at a triggering event, most commonly the owner’s death. Under IRC §1014, property acquired from a decedent generally receives basis equal to FMV at date of death (or alternate valuation date), which can increase (step‑up) or decrease (step‑down) the basis compared with the decedent’s basis.

• Carryover (transferred) basis: when property is gifted during the donor’s lifetime, the donee typically inherits the donor’s adjusted basis — the donor’s basis "carries over" to the donee. That is the default rule for most gifts.

• Holding period; short‑term vs long‑term: the holding period affects whether a gain is short‑term or long‑term. For gifted property, the donee generally tacks on the donor’s holding period (tacking), which can allow long‑term capital gain treatment; for inherited property stepped up at death, the holding period is treated as long‑term by default.

Federal tax rules — gifts versus inheritances

The central federal tax distinction affecting basis is this: transfers by gift during a donor’s life generally use carryover basis rules, while transfers at death generally receive a basis equal to FMV at the date of death (step‑up/step‑down) under IRC §1014.

• Gifts during life: when a person gives stock to another while alive, the donee’s basis is typically the donor’s adjusted basis at the time of gift. The donor may need to file Form 709 if the gift exceeds the annual exclusion or qualifies against the lifetime exemption.

• Transfers at death: when the decedent owned stock at death and the asset passes to heirs, the heir’s basis is generally the FMV at date of death (or alternate valuation date if elected by the executor) — producing a step‑up if the asset appreciated.

• Alternate valuation date: for estate tax purposes, an executor may elect an alternate valuation date (six months after death) in some estates, which then sets value for estate tax and basis purposes in certain circumstances.

• Exceptions and elections: there are limited exceptions and interactions (spousal unlimited marital deduction transfers, community property rules, certain gift tax additions to basis). The general carryover vs step‑up distinction, however, is the baseline for most planning.

Basis rules for gifted stock

When stock is given as a gift, the donee’s starting point is the donor’s basis. Below are the specific mechanics and notable nuances.

Donee takes donor’s adjusted basis

• Basic rule: the donee receives the donor’s adjusted basis in the gifted shares. If the donor bought 100 shares for $10,000 (basis = $100/share) and gifts them when FMV = $200/share, the donee’s basis remains $100/share. If the donee later sells, gain is computed using that carryover basis.

• Tacked holding period: a donee generally tacks the donor’s holding period to determine whether any subsequent gain is short‑term or long‑term.

• Gift tax effect (brief): if the donor pays gift tax that is attributable to the net appreciation in the gifted property, a portion of the gift tax may be added to the donee’s basis (see next section).

Dual‑basis and loss rules

The tax code includes a protective rule when the gifted property has declined in value at the time of gift.

• Dual basis concept: if FMV at gift date is less than donor’s adjusted basis, the donee has a dual basis — one basis for determining gain and another for determining loss.

  • For determining gain, the donee uses the donor’s adjusted basis (carryover basis).
  • For determining loss, the donee uses the FMV at the date of gift (the lower value).

• No‑gain/no‑loss zone: if the donee later sells the asset for a price between the FMV at gift date and the donor’s adjusted basis, that sale produces neither gain nor loss for tax purposes.

Example in brief: donor basis = $100, gift FMV = $60; if donee later sells at $50 (below $60), that’s a loss computed from $60; if donee sells at $80 (between $60 and $100), no gain/no loss; if donee sells at $120, gain computed from $100.

Addition for gift tax paid

If the donor pays gift tax and part of that tax is attributable to the net appreciation in the gifted property, then under IRC rules a portion of the gift tax may be added to the donee’s basis — slightly increasing the carryover basis. The mechanics are narrow and depend on Form 709 allocation and the portion attributable to the gifted appreciation.

Inherited stock and the step‑up rule

In contrast to gifts, inherited stock typically receives a step‑up (or step‑down) to FMV at the decedent’s date of death.

• General rule: heirs receive basis equal to FMV at date of death (or, if elected by the executor for estate‑tax valuation, the alternate valuation date) per IRC §1014. The result can eliminate built‑in capital gains that accrued before death.

• Holding period: property acquired from a decedent is treated as long‑term property regardless of how long the decedent held it — simplifying tax treatment when heirs sell.

• Practical impact: Because the basis is reset to FMV at death, heirs who immediately sell typically have little or no capital gain. This is why the step‑up rule is often central to estate tax and wealth‑transfer planning discussions.

Special situations and exceptions

Several special situations affect how basis is determined for transfers and whether a step‑up applies.

• Spousal transfers and marital deduction: transfers between spouses who are U.S. citizens are usually nonrecognition events during life and at death (the unlimited marital deduction), with different basis consequences depending on whether the transfer is during life or at death. For example, a surviving spouse inheriting assets at death typically receives a step‑up to FMV.

• Community property states: in community property jurisdictions, when one spouse dies, half of the community property may receive a step‑up in basis even if it was acquired during marriage, effectively stepping up the entire community interest in certain circumstances.

• Jointly held property and titling: the form of ownership (joint tenants with rights of survivorship, tenants in common, etc.) affects how much of the property receives a step‑up on death. For example, if spouses hold property as joint tenants and one dies, the surviving joint owner may receive a step‑up on the decedent’s portion.

• Trusts: many trusts produce similar step‑up treatment for beneficiaries when trust assets are includible in the decedent’s estate; however, the specific terms and tax status of the trust (revocable vs irrevocable, grantor trust rules) will determine inclusion in the estate and whether step‑up applies.

• IRAs and qualified retirement accounts: most employer plans and IRAs do not receive a step‑up in basis because they are income‑taxed on distribution rather than capital‑gain taxed; beneficiaries typically recognize ordinary income when they withdraw funds. The step‑up basis rule generally applies to property, not to tax‑deferred retirement accounts in the same way.

• Gifts shortly before death: gifting assets shortly before death removes the assets from the donor’s estate (avoiding future estate inclusion), but it also deprives recipients of a step‑up that would have occurred if the donor had held the assets until death.

Application to digital assets and securities (including crypto)

The tax rules discussed apply broadly to property. That includes stocks and most securities and, for U.S. federal tax purposes, cryptocurrencies are treated as property rather than currency.

• Securities: stocks and ETFs follow the same principles — gifts carry over the donor’s basis (subject to dual‑basis rules on losses) and inheritances generally step up to FMV at death.

• Cryptocurrencies and digital assets: the IRS treats crypto as property. Therefore, gifts of crypto generally result in carryover basis for the recipient; inherited crypto generally receives a step‑up to FMV at death. Because crypto markets move rapidly, careful recordkeeping of FMV at gift date or date of death is essential.

• Practical note: digital assets often present recordkeeping challenges (wallet addresses, chain‑history, forks, airdrops). When using Web3 wallets, Bitget Wallet is a recommended option for custodial and noncustodial recordkeeping and transfer workflows tied to Bitget services.

• Evolving guidance: the IRS and Treasury periodically release new guidance about crypto and reporting obligations; follow IRS publications and platform reporting requirements when transferring or inheriting digital assets.

Practical tax planning considerations

Deciding whether to give stock now or leave it to heirs involves tradeoffs between estate planning, income tax, and future appreciation. Below are common considerations.

• Gifting now vs waiting until death (pros and cons):

  • Pros of gifting now: removes future appreciation from the donor’s estate; can use annual exclusion gifts to transfer wealth tax‑efficiently; can benefit donees sooner.
  • Cons of gifting now: donee receives carryover basis and may face larger capital gains on later sale; donee may be unable to sell tax efficiently; loses potential step‑up that heirs would receive at death.

• Timing and large appreciation: if assets have already appreciated significantly and will likely remain in the family, many taxpayers favor retaining appreciated assets until death to allow heirs to benefit from a step‑up in basis.

• Tax‑loss harvesting before gifting: if a donor holds depreciated securities, selling them before gifting can realize a capital loss that the donor can use against gains or deduct up to limits; gifting depreciated property can leave the donee unable to claim the donor’s loss (dual‑basis rules may limit the loss deduction).

• Upstream gifting and step‑up strategies: some taxpayers use "upstream" gifting or other multi‑generational strategies (for example, gifting to a parent or older relative who then holds until death) to engineer eventual step‑ups for later beneficiaries — but such strategies are complex, may raise gift/estate tax scrutiny, and must be evaluated with advisors.

• Consider income needs and control: gifting transfers control; if the donor needs income or wants control over timing of sale, gifting may not be appropriate.

• State tax and non‑tax consequences: take into account state estate and gift tax rules, Medicaid eligibility considerations, and family dynamics.

• Consult a professional: because of potential estate tax, gift tax, and income tax interactions, consult a qualified tax professional or estate planning attorney for tailored guidance.

Reporting, recordkeeping, and compliance

Proper documentation is critical for both donors and donees when stock is transferred. Donees should obtain and preserve the following records:

• Donor information: donor’s identity, evidence of the gift, dates, and any statements about basis.

• Donor’s basis and date of acquisition: original purchase price, acquisition date, adjustments (splits, returns of capital), and any relevant brokerage statements showing basis.

• FMV at gift date (if needed): for dual‑basis situations or disputes, contemporaneous evidence of FMV at gift date (brokerage quotes, exchange prices) is useful.

• Gift tax filings: copies of Form 709 (United States Gift (and Generation‑Skipping Transfer) Tax Return) if filed — this may affect basis adjustments for gift tax attributable to appreciation.

• Chain of title: documentation showing the transfer (custodial instructions, transfer agent records, brokerage account statements). For crypto, maintain wallet transaction history and on‑chain evidence.

When the donee ultimately sells, report transactions on Schedule D and Form 8949 (as applicable). Use the donor’s adjusted basis for gain calculations, and apply the dual‑basis rules when FMV at gift date < donor basis.

Recommend documenting the gift in writing and keeping a copy with tax records for at least as long as statute of limitations plus the holding period of the asset.

Examples

Below are three concise numeric examples illustrating the core rules.

1. Gifting appreciated stock (carryover basis)

• Donor bought 100 shares at $50/share (basis = $5,000).
• Donor gifts all 100 shares when FMV = $120/share ($12,000).
• Donee’s basis = donor’s basis = $5,000 ($50/share).
• If donee later sells the 100 shares at $130/share ($13,000), taxable gain = $13,000 − $5,000 = $8,000.

This shows that gifting removes the step‑up; the donee bears pre‑gift appreciation as taxable gain.

1. Gifting depreciated stock (dual‑basis / loss rules)

• Donor bought 100 shares at $100/share (basis = $10,000).
• Donor gifts when FMV = $60/share ($6,000).
• Donee’s basis for gain = $10,000; basis for loss = $6,000.
• If donee sells at $55/share ($5,500): loss = $5,500 − $6,000 = −$500 (deductible loss).
• If donee sells at $80/share ($8,000): sale price falls between $6,000 and $10,000 → no gain/no loss.

1. Inheriting stock (step‑up to FMV)

• Decedent bought 100 shares at $50/share (basis = $5,000), FMV at death = $120/share ($12,000).
• Heir’s basis = $12,000 (FMV at death).
• If heir sells immediately at $120/share, there is no capital gain.
• The step‑up eliminated built‑in appreciation for income tax purposes.

State tax considerations

State tax rules can differ from federal law.

• Some states have their own estate or inheritance taxes that may affect planning and valuations.

• State income tax treatment of capital gains may influence whether step‑up timing matters in certain high‑rate jurisdictions.

• Always check state law or consult a state‑licensed tax advisor for potential deviations from federal rules.

Common FAQs

• If I gift stock to my child, will they owe tax immediately? No — the donee incurs tax only when they sell the stock; the sale’s gain or loss is computed using the donor’s carryover basis (subject to dual‑basis rules).

• Does gifting to a spouse change basis? Transfers between U.S. citizen spouses are generally tax‑free during life, and property passing at death between spouses typically receives a step‑up to FMV for the surviving spouse.

• What happens if donor paid gift tax? Part of the gift tax attributable to appreciation may be allocated to the basis of the gifted property and added to the donee’s basis; mechanics depend on the gift tax return and calculations.

• If I gift crypto, is basis carried over? Yes — for U.S. federal tax purposes, crypto is property and gifts carry over the donor’s basis; inherited crypto generally receives a step‑up to FMV at death.

• Can a donor sell depreciated assets to realize losses before gifting? Yes — selling assets to realize a loss before gifting allows the donor to capture the tax loss, which often cannot be transferred to the donee.

Sources and further reading

As of 2026-01-22, authoritative sources include the following materials for deeper research: IRS Publication 551 (Basis of Assets), IRC §1014 (Basis of property acquired from a decedent), IRS Form 709 (Gift Tax Return) instructions, Schedule D and Form 8949 guidance for capital gains reporting, and IRS guidance on virtual currency.

Sources: IRS publications and Treasury regulations; consult a tax advisor for application to personal facts.

Disclaimer

This article provides general informational content and is not tax, legal, or investment advice. For guidance tailored to your specific circumstances, consult a licensed tax professional or estate planning attorney.

Further exploration: learn how Bitget’s trading platform and Bitget Wallet can help with custody, transfer records, and trading of securities‑like tokens and digital assets; explore Bitget’s resources to support recordkeeping and secure transfers.