does gifting stock reset cost basis

Does Gifting Stock Reset Cost Basis?

Lead summary — short answer

Does gifting stock reset cost basis? In almost all ordinary gift situations, the answer is no: when you gift stock, the recipient generally takes the donor’s adjusted cost basis (a carryover basis) and the donor’s holding period. There are important exceptions — notably when the fair market value (FMV) at the time of gift is less than the donor’s basis (triggering a dual‑basis rule for loss vs gain) and when basis is changed by gift tax paid or by death (step‑up/step‑down). Read on for clear rules, practical examples, reporting steps, and tax‑planning tradeoffs.

Note on sources and timing: As of June 30, 2024, IRS Publication 551 and IRS guidance summarize the U.S. federal tax treatment of gifts of property. This article relies on IRS rules and explanatory material from major tax guidance providers to explain how gifting affects basis; consult a qualified tax advisor for tailored advice.

H2: Basic concepts

H3: Cost basis (definition)

Cost basis is the amount you use to determine gain or loss when you sell or otherwise dispose of an asset. For stock, the typical cost basis is what the owner paid to buy the shares (purchase price plus commissions and certain fees). When you sell, taxable gain or deductible loss equals the sale proceeds minus your cost basis (adjusted for stock splits, dividends that change basis, certain corporate actions, and other adjustments).

H3: Carryover basis vs. stepped‑up basis (overview)

• Carryover basis: When property is given as a gift during someone’s lifetime, the recipient normally “carries over” the donor’s adjusted basis. The donor’s basis becomes the recipient’s basis for determining gain, subject to specific rules for losses and gift‑tax adjustments.
• Stepped‑up (or stepped‑down) basis: When property is inherited from a decedent, beneficiaries usually receive a basis equal to the FMV at the decedent’s date of death (or alternate valuation date), which can eliminate built‑in gains for tax purposes. That is commonly called a “step‑up” to current value (or step‑down if FMV is lower than decedent’s basis).

H2: IRS rules for property received as a gift

H3: General rule — recipient takes donor’s adjusted basis

Under U.S. federal tax rules, the default rule is that the recipient’s basis for figuring gain on subsequent sale is the donor’s adjusted basis immediately before the gift. That means the donor’s acquisition date and adjustments generally carry over. If the recipient later sells for more than that carried‑over basis, the gain is calculated using the donor’s original (adjusted) basis.

To be explicit: does gifting stock reset cost basis? No — not under the general carryover rule. The recipient inherits the donor’s adjusted basis (carryover basis), so the built‑in gain or loss at the time of gift remains embedded in the shares for tax purposes.

H3: Special dual‑basis rule when FMV < donor’s basis

There is an important exception that creates a “dual basis” for the recipient when the FMV at the date of gift is less than the donor’s basis:

• For determining gain: the recipient’s basis for gain purposes is the donor’s adjusted basis (carryover basis). If the recipient later sells at a price above the donor’s basis, the gain equals sale price minus donor’s basis.
• For determining loss: if the recipient sells at a price below the FMV at the date of gift, the recipient’s basis for loss purposes is the FMV at the date of gift. If sale is between FMV at gift and donor basis, no gain or loss is recognized.

Practical effect: if donor basis is $10,000 and FMV at gift is $6,000, the recipient who later sells at $8,000 has no recognized gain or loss (sale price is between $6,000 and $10,000). If recipient sells at $5,000, the loss is $1,000 (5,000 minus 6,000). If they sell at $12,000, gain is $2,000 (12,000 minus 10,000).

H3: Effect of gift tax paid on basis

When gift taxes are paid by the donor on a gift that exceeds the annual exclusion, part of the gift tax may be allocated to increase the recipient’s basis in the gifted property. The rule increases the donee’s basis by the portion of gift tax attributable to the net appreciation in the value of the gift (that is, the amount by which the FMV exceeds the donor’s basis), using a statutory formula. This is a technical calculation and applies only when a gift tax return (Form 709) is filed showing taxable gifts.

Bottom line: if the donor pays gift tax that’s attributable to appreciation, the recipient’s basis may be donor basis plus a gift‑tax increase. Donor must file Form 709 and follow the IRS rules to document the calculation.

H2: Holding period and tax treatment after a gift

H3: Holding period carries over

When stock is gifted, the recipient generally inherits the donor’s acquisition date for purposes of determining whether a later sale qualifies for long‑term or short‑term capital gains treatment (i.e., “tacking” the donor’s holding period). That means long‑term status can be achieved sooner for the recipient if the donor already held the shares more than one year before the gift.

H3: Practical consequences for short‑ vs long‑term treatment

Since long‑term capital gains rates are often lower than short‑term ordinary income rates, the recipient benefits if the donor’s holding period already qualifies as long‑term. Conversely, if the donor’s holding period is short, the recipient must wait until the combined (tacked) holding period reaches one year to receive long‑term treatment on gains computed using the donor basis. This can affect whether the recipient pays lower long‑term rates on future appreciation.

H2: Gifting appreciated vs depreciated assets — tax consequences and traps

H3: Gifting appreciated stock

Gifting appreciated stock moves future appreciation out of the donor’s estate and can be an efficient way to transfer wealth, especially when the recipient is in a lower tax bracket. Because does gifting stock reset cost basis? No — the recipient’s basis is the donor’s basis, so the recipient will recognize taxable gain based on the donor’s carryover basis when they sell.

Advantages of gifting appreciated stock:

• Removes further appreciation from the donor’s estate for estate‑tax purposes (if applicable).
• If recipient has a lower marginal tax rate or tax preferences, they may pay less tax when selling.
• With carryover basis, any unrealized gain remains taxable when the recipient disposes of the asset.

Risks:

• Recipient could face a substantial tax bill when they sell because basis is often low relative to current FMV.
• If the recipient is in a higher tax bracket than the donor, gifting can increase taxes overall.

H3: Gifting depreciated stock

Gifting a stock that has declined in value can be a tax trap. Because of the dual‑basis rule, neither the donor nor the recipient may be able to claim the loss:

• Donor: by gifting the loss asset, the donor gives up the ability to sell and realize the loss (which might otherwise offset gains).
• Recipient: receives a dual basis — their loss basis may be the FMV at gift rather than donor basis, meaning the loss may be limited or disallowed depending on the sale price.

Because of this, it is often preferable for a donor to sell a depreciated asset (realize the loss) and then gift the proceeds (cash) to the intended recipient, especially if the donor wants to capture the tax loss.

H3: Examples illustrating gain/loss outcomes

Example A — Gifted appreciated stock

• Donor basis: $10,000
• FMV at gift: $50,000
• Recipient sells later at $60,000 Recipient’s gain = sale price ($60,000) – donor basis ($10,000) = $50,000 (taxable as short/long term depending on tacked holding period).

Example B — Gifted depreciated stock with dual basis

• Donor basis: $10,000
• FMV at gift: $6,000
• Recipient sells later at $8,000 Recipient’s result: no recognized gain or loss because sale price ($8,000) is between FMV at gift ($6,000) and donor basis ($10,000).

These two examples show why the question “does gifting stock reset cost basis?” matters practically: in gifts the cost basis commonly does not reset to FMV, and the dual basis rule can block loss claims.

H2: Gifting vs. selling then gifting vs. inheriting

H3: Selling then gifting proceeds

Selling the asset before gifting converts the position into cash and triggers recognition of gain or loss by the donor. Donor then gifts the proceeds to the recipient (cash has no carryover basis issue). This route can be advantageous when:

• Donor wants to realize a loss (to offset gains) before transferring value.
• Donor is willing to recognize gain now to remove future appreciation from estate.

Tradeoffs: immediate tax consequences for donor, but recipient receives cash without basis carryover complexities.

H3: Inheritance and step‑up in basis

When property passes at death, beneficiaries generally receive a stepped‑up (or stepped‑down) basis equal to FMV at the date of death (with exceptions for certain transfers and alternate valuation options). That step‑up often eliminates built‑in capital gains for the beneficiary and can be materially preferable to lifetime gifting for highly appreciated assets. In short: gifting during life retains the donor’s basis with the recipient, while inheriting typically provides a fresh basis equal to FMV at death.

H3: Estate planning considerations

Deciding whether to gift during life or leave assets at death depends on multiple factors: donor’s estate size, estate‑tax exposure, donor and recipient tax brackets, liquidity needs, and family objectives. Common motives to gift during life include using the annual gift tax exclusion to transfer value tax‑efficiently, removing future appreciation from the estate, and assisting recipients with liquidity. Conversely, if avoiding capital gains tax for heirs is the priority and estate tax is not a concern, holding until death may be preferable because of the step‑up.

H2: Reporting, documentation, and compliance

H3: Donor reporting (Form 709)

Donors must file IRS Form 709 (United States Gift (and Generation‑Skipping Transfer) Tax Return) if gifts to any one recipient exceed the annual exclusion in a calendar year or if certain lifetime exemptions are elected. Filing Form 709 is how donors report taxable gifts and calculate any applicable gift tax and the allocation of the lifetime estate and gift tax exemption. The figures reported on Form 709 can affect the basis computation when gift tax increases the donee’s basis.

H3: Recipient recordkeeping

Recipients should obtain and keep accurate records to substantiate the carried‑over basis, including:

• Donor’s original purchase documentation showing acquisition date and cost.
• Gift date and FMV documentation (broker statements showing transfer date and price).
• Copy of any Form 709 filed by the donor (showing gift tax paid and allocation).

These documents are essential if the recipient later sells the gifted stock and the basis is questioned by the IRS. Proper recordkeeping prevents surprises and makes reporting simpler.

H3: Brokerage transfers and basis reporting

When shares are transferred between brokerages, the receiving broker will often populate a basis on Form 1099‑B using available transfer information. However, brokers may not always receive accurate donor basis records. The broker’s reported cost basis can sometimes be blank, incorrect, or based on the FMV at transfer. Recipients must verify and, if necessary, correct basis information when filing taxes. Keep transfer confirmations and statements showing donor basis, acquisition date, and FMV at transfer.

When reconciling 1099‑B entries, be prepared to attach explanatory documentation or work with a tax professional to ensure the sale is reported using the correct carryover basis.

H2: Special situations and exceptions

H3: Spousal transfers and community property rules

Transfers between spouses are generally tax‑free during life under the unlimited marital deduction for U.S. citizens, and basis rules differ depending on whether property is transferred incident to divorce or as a bona fide gift. For U.S. tax purposes, transfers between spouses are normally nonrecognition events and carryover basis issues are typically moot because no gain is recognized.

Community property states have special rules: for community property owned at death, both halves of the community property may receive a step‑up in basis, which can further reduce capital gains for surviving spouses. These state nuances can materially affect planning.

H3: Transfers to minors, custodial accounts, and the kiddie tax

Gifts to minors commonly use custodial accounts (e.g., UGMA/UTMA in the U.S.). Gifted securities in custodial accounts generally carry the donor’s basis and holding period. Earnings and certain unearned income of minors may be subject to the kiddie tax rules, which can tax investment income at parental tax rates above certain thresholds, reducing tax benefits of gifting to lower‑bracket children. Additionally, gifted assets can affect financial aid formulas for college.

H3: Gifts of fractional shares, restricted stock, or stock with unusual features

Valuation and basis can be more complex for fractional shares, restricted stock subject to vesting or forfeiture, or securities with special rights. For restricted stock tied to compensation, special rules (including 83(b) elections) may affect the treatment and basis. For fractional shares, basis must be apportioned consistently across fractions. When transferring unusual securities, obtain an accurate FMV at transfer and documentation of donor basis and acquisition dates.

H3: Applicability to cryptocurrencies and other property

The IRS treats cryptocurrencies as property. Therefore, does gifting stock reset cost basis? The same carryover basis principles apply to crypto gifts: recipients generally take the donor’s adjusted basis and holding period, and the dual‑basis rule applies where FMV at gift is less than donor basis. Be aware that crypto valuation can vary intra‑day and that accurate timestamped transfer and FMV documentation is crucial. When transferring crypto, consider using secure wallets — Bitget Wallet is a recommended option for custody and transfer when interacting with Bitget services or trading on the Bitget platform.

H2: Tax planning strategies and considerations

H3: When to gift vs. when to retain until death

High‑level guidance:

• Avoid gifting depreciated assets: sell to realize loss, then gift cash.
• Gift appreciated assets when:
  • you want to remove future appreciation from your estate,
  • the recipient has a lower tax rate and will likely pay less tax on sale,
  • you can use annual exclusions or the lifetime exemption effectively.
• Retain assets until death when heirs would benefit from a step‑up in basis and estate taxes are not a concern.

H3: Use of annual exclusion and lifetime exemption

Each year, donors can give up to the annual exclusion amount per recipient without using any of their lifetime exemption or filing Form 709. Larger gifts reduce the donor’s remaining lifetime estate and gift tax exemption unless gift tax is paid. Strategically using the annual exclusion and lifetime exemption can move significant value out of taxable estates over time, but remember basis consequences: large lifetime gifts generally carry donor basis unless adjusted by gift tax.

H3: Coordinating with professionals

Because basis, gift tax, and estate‑tax consequences interact in complex ways, coordinate gifting plans with a CPA, tax attorney, or estate planning attorney. Professional advice helps quantify tradeoffs: income tax on realized gains, estate tax savings, liquidity needs, and family goals.

H2: Frequently asked questions (brief answers)

Q: Does gifting stock erase the donor’s capital gains? A: No — gifting stock does not erase the donor’s built‑in gains; the recipient usually takes the donor’s adjusted basis and will recognize gain or loss on sale according to that basis (subject to the dual‑basis rule and gift‑tax adjustments).

Q: If I gift stock to my child, what basis do they use when selling? A: The child generally uses the donor’s adjusted basis (carryover basis) for gain purposes, and tacks on the donor’s holding period; if FMV at gift is lower than donor basis, the dual‑basis rule applies for losses.

Q: Does gifting crypto change basis? A: Gifting crypto is treated like other property — recipients normally receive the donor’s adjusted basis and holding period, with the same dual‑basis caveat when FMV at gift is lower than donor basis.

Q: Does gift tax increase basis? A: Part of gift tax attributable to appreciation can increase the recipient’s basis under IRS rules, but only when Form 709 is filed and the gift tax is allocated to the gifted property using the statutory calculation.

H2: Practical examples (worked scenarios)

Scenario 1 — Gifted appreciated stock

• Donor originally bought 1,000 shares for $10 per share = donor basis $10,000.
• Donor gifts the 1,000 shares when FMV = $50 per share = $50,000.
• Recipient later sells all 1,000 shares at $60 per share = $60,000.

Tax calculation for recipient:

• Carryover basis = donor basis = $10,000.
• Recognized gain = sale proceeds ($60,000) − basis ($10,000) = $50,000.
• Holding period: recipient tacks on donor’s holding period; if donor held >1 year, donor’s holding period makes recipient’s gain long‑term.

Scenario 2 — Gifted depreciated stock with dual basis

• Donor basis = $10,000; FMV at gift = $6,000.
• Recipient sells at $8,000.

Tax outcome:

• Sale price ($8,000) is between FMV ($6,000) and donor basis ($10,000).
• No gain or loss is recognized under the dual‑basis rule.

Scenario 3 — Selling then gifting proceeds vs gifting shares Option A: Donor sells and gifts $50,000 cash. Donor recognizes gain now and pays tax; recipient receives cash with no basis issue. Option B: Donor gifts the $50,000 worth of shares with donor basis $10,000. Recipient sells later and recognizes gain based on $10,000 basis; this defers realization but may shift tax burden.

Scenario 4 — Inherited vs gifted stock

• Donor basis = $10,000, FMV at donor death = $50,000.
• If shares are inherited on donor’s death, beneficiary typically receives basis = $50,000 (step‑up) and can sell immediately tax‑free if sale price equals FMV.
• If gifted during life, recipient’s basis is $10,000 and selling at $50,000 would generate a $40,000 taxable gain.

These scenarios highlight why the question “does gifting stock reset cost basis” is central to transfer planning.

H2: Sources and further reading

Primary authorities and guides (U.S. federal focus):

• IRS Publication 551 (Basis of Assets) — summarizes basis rules for gifts and inheritances.
• IRS instructions for Form 709 (United States Gift (and Generation‑Skipping Transfer) Tax Return) — when and how to report gifts and gift taxes.
• IRS FAQs on basis of property received as a gift (official IRS online guidance).

Reputable explainers and firm guides:

• Tax preparation firms’ explainers on gifting and basis (e.g., major tax software providers and brokerage tax centers).
• Investment‑firm whitepapers on gifting securities and estate planning.

Note: This article focuses on U.S. federal tax rules. State tax rules and international tax consequences can differ. For complex, high‑value transfers consult a CPA or estate attorney.

Appendix

A1: Short glossary of terms

• Cost basis: The taxpayer’s investment in property used to determine gain or loss on sale.
• FMV (Fair Market Value): The price at which property would change hands between a willing buyer and seller.
• Carryover basis: Donor’s adjusted basis that transfers to recipient when property is gifted during life.
• Step‑up (or step‑down): Adjustment of basis to FMV at date of death for inherited property.
• Gift tax: Federal tax on transfers during life above the annual exclusion; reported on Form 709.

A2: Quick checklist for donors and recipients Donor checklist:

• Keep purchase records showing original basis and acquisition date.
• Obtain FMV documentation at date of gift (broker statements).
• File Form 709 if gifts exceed annual exclusion and retain a copy.
• Consider selling depreciated assets to realize losses before gifting.

Recipient checklist:

• Get written confirmation of donor’s original basis and acquisition date.
• Retain broker transfer confirmations showing date and FMV at transfer.
• Track holding period tacked from donor to determine short vs long term.
• Verify broker‑reported basis on Form 1099‑B matches carried‑over basis and correct if needed.

Call to action

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Further help

If you’re planning significant gifts, keeping clear records and coordinating with a tax professional and estate attorney is essential. Does gifting stock reset cost basis? Usually not — understanding the exceptions and documenting donor basis will help prevent surprises when either party needs to report a sale.