Save Tax $$ and Help Dad By Gifting Appreciated Stock

Today we describe a way you can help others by gifting appreciated stock. You may want or need to help support someone with a low income (parents or children). Gifting appreciated stock could allow you to help others without paying tax on the gain. The same technique can also be used to make donations to nonprofit organizations such as your church or private school.


I am not a financial professional. Please consult one before taking any action on the ideas presented below.

Joe’s Dad Could Use A Hand

My friend Joe has done well financially, especially considering his humble beginnings. He has saved and invested and looks forward to a secure retirement. But his father, Jack, is getting worried about finances. Illness and inflation are taking ever-growing chunks of his pension. Joe wants to see how he can best help his father. Joe’s mother Jackie would be proud. May she rest in peace.

Capital Gains Taxes

Let’s have quick look at tax rates on capital gains for single filers:

There is a great opportunity to sell appreciated stock and pay 0% capital gains, as long as your overall income is below $39,375. The problem is Joe has too much income to qualify. But, Jack’s income of $25k/year from his pension well-below the 0% tax bracket limit.

The answer is for Joe to gift stock to Jack, who then sells it to supplement his income. The annual gift tax exclusion is currently $15k per giver, so Joe and Jane (his wife) can give a total of $30k in stock value to Jack. As long as the gain is under $14k, Jack pays no tax when he sells.

How To Set It Up

Basically, Jack opens an account at some low-cost stockbroker (many offer free trades now). Joe picks out a stock he has with the most long-term gain because the stock gain will not be taxed when Jack sells it.

Joe tells his broker to transfer in kind the shares to Jack’s account. The transfer in kind is important because Joe does not want his broker to sell the stock and send cash. Doing so would cause the gain to be reported as Joe’s income. Jack then sells the shares and starts shopping for a clean, new ball cap with his new wealth.

By the way, this will work for any lower-income person you want to help, including your (cough) recent college grad kids.

What If…

This setup is so good Joe doesn’t really need to wait for Jack to get low on funds. Joe can start gifting shares in this manner any time he likes. As long as Jack only sells an amount that keeps his total income below $39,375, so the gain is tax-free.

What if Jack passes and still has some of this stock unsold? Depending on Jack’s will, the stock can come back to Joe with a stepped-up basis, i.e. Joe gets the stock back and can sell it all tax-free. A nice benefit for helping Jack all these years.

Who do you want to gift appreciated stock to?

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  1. No can do. That would be a distribution from your IRA/401k. You would pay tax on that as regular income before it got to Jack.

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