Can I Gift Stock to My Child? Cost Basis, Kiddie Tax, and Gift Limits

Gifting stock to a child is straightforward: you move shares in-kind from your brokerage account to a custodial account if the child is a minor, or directly to the child’s own brokerage account if they’re an adult. For 2026, you can transfer up to $19,000 worth of stock per child without any gift tax reporting.¹ The paperwork is the easy part. The tax consequences — cost basis, the kiddie tax, and how a custodial account affects financial aid — are what deserve your attention before you sign the transfer form.

How the Transfer Works

Children under 18 can’t hold securities in their own name or sign binding financial contracts, so a minor child needs a custodial account. Two frameworks cover this: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). A parent or other adult serves as custodian and manages the investments on the child’s behalf.²

The stock belongs to the child the moment it lands in the account. The gift is irrevocable. You can’t take it back, and any sales or withdrawals from the account must be for the child’s benefit, though “benefit” is read broadly to cover education, medical expenses, enrichment activities, and other legitimate needs.

The age at which the child takes full control varies by state and by how the transfer was made. Most states default to 18 or 21, and some permit custodians to extend control to age 25 depending on whether the transfer was an irrevocable gift, made through a will or trust, or made by other means.² When that age arrives, the account transfers to the child outright. If you’re uncomfortable with a young adult controlling a large brokerage account, factor that deadline into your decision now.

For an adult child, you skip the custodial layer. You initiate an in-kind transfer from your brokerage to the child’s individual brokerage account. “In-kind” means the shares move without being sold, which matters because selling first would create a taxable event for you. The shares simply change registration.

Cost Basis and Holding Period Your Child Inherits

This is where gifting stock differs sharply from leaving it as an inheritance. When you gift stock, your child takes your original cost basis — the price you paid. Tax professionals call this a carryover basis. Buy 100 shares at $20, gift them when they’re worth $80, and your child’s basis is still $20 per share. If your child sells at $80, they owe capital gains tax on $60 per share.³

Your child also inherits your holding period. If you held the shares more than a year before gifting them, your child qualifies for long-term capital gains rates immediately, even if they sell the day after the transfer.⁴ Long-term rates top out at 20% for most taxpayers versus ordinary rates that reach 37%, so the inherited holding period is genuinely valuable.

When the Stock Has Lost Value

A special rule kicks in when the stock’s fair market value on the gift date is lower than your original basis. Your child uses your original basis to calculate any gain but the lower fair market value to calculate any loss. A sale price that falls between the two numbers produces neither a gain nor a loss.³

The practical result: gifting a stock that has lost value wastes the tax loss. You’re better off selling the stock, claiming the capital loss on your own return, and gifting the cash instead.

Gift Versus Inheritance

Inherited stock receives a stepped-up basis to its fair market value on the date of the owner’s death, which effectively erases all the unrealized gains. Gifted stock does not. If you hold highly appreciated shares your child won’t need for many years, leaving them as an inheritance can eliminate a substantial capital gains bill. Gifting makes more sense when the stock hasn’t appreciated much, when the child sits in a lower tax bracket, or when you want the assets in their hands now.

The Kiddie Tax on Dividends and Gains

Investment income earned inside a minor’s custodial account doesn’t all get taxed at the child’s rate. The kiddie tax exists specifically to stop parents from shifting investment income to a child in a lower bracket. For 2026:

The first $1,350 of unearned income is covered by the dependent’s standard deduction and is tax-free.
The next $1,350 is taxed at the child’s own rate, usually the lowest bracket.
Anything above $2,700 is taxed at the parent’s marginal rate.

The kiddie tax applies to children under 18, children age 18 who don’t earn more than half their own support, and full-time students aged 19 through 23 who don’t earn more than half their support.⁵ If your child’s unearned income exceeds $2,700, you’ll file Form 8615 with the child’s tax return to calculate the liability.⁶

For dividend-paying stocks, the kiddie tax caps how much income-shifting benefit you actually get. Growth stocks that pay little or no dividend sidestep the issue until the child sells and realizes gains.

Gift Tax and the $19,000 Annual Exclusion

The federal annual gift tax exclusion for 2026 is $19,000 per recipient.¹ Stock gifts up to that amount to each child require no IRS reporting. Three children means $57,000 in transfers with no paperwork.

When the fair market value of a stock gift to a single recipient exceeds $19,000 in a calendar year, you file IRS Form 709. The form asks for the recipient’s name and address, a description of the stock, its CUSIP number, the fair market value on the gift date, and your original cost basis.

Filing Form 709 doesn’t mean you owe gift tax. The amount above $19,000 simply counts against your lifetime unified credit, which for 2026 is $15,000,000.¹ Most parents will never come close to using that up, but the IRS still requires the paper trail.

Gift Splitting for Married Couples

Married parents can elect to split gifts so that each spouse is treated as having made half. That doubles the annual exclusion to $38,000 per child for 2026. Gift $35,000 in stock to your daughter and elect splitting, and neither half exceeds $19,000, so no portion counts against the lifetime credit.⁷

The catch is that electing gift splitting generally requires both spouses to file their own Form 709 even if only one spouse actually made the gift. There’s no joint gift tax return. The IRS recommends mailing both returns together.⁷

Effect on College Financial Aid

Parents saving for college should know that UGMA and UTMA custodial accounts hurt financial aid eligibility more than most other savings vehicles. Because the assets legally belong to the child, the FAFSA treats them as student assets, which are assessed at a rate of up to 20% when calculating expected family contribution. Assets held in a parent’s name, including 529 college savings plans, are assessed at no more than roughly 5.64%. A custodial account holding $50,000 in gifted stock could reduce aid eligibility by about $10,000, compared to roughly $2,800 for the same amount in a parent-owned 529.

If college is the goal, a 529 plan is almost always the better vehicle. A custodial stock gift fits better when the money is for general wealth-building rather than tuition, or when the child is past the financial aid stage.

Completing the Transfer

Contact your brokerage firm to request the transfer. You’ll need the child’s account number and the receiving firm’s Depository Trust Company (DTC) participant number for electronic delivery. Most brokerages provide a Letter of Authorization form that you sign to approve the movement of shares.⁸

Some firms require a Medallion Signature Guarantee instead of a simple notarization, especially for larger transfers or physical stock certificates. You can obtain one from a bank, credit union, or brokerage firm where you’re already a customer; institutions participating in the program generally won’t guarantee signatures for non-customers.⁸ Processing typically takes three to five business days once the paperwork is in.

After the shares land, handle the tax side. If the gift exceeded $19,000 (or $38,000 with gift splitting), file Form 709 by April 15 of the following year. An extension on your income tax return extends the gift tax return deadline automatically.⁷ Keep records of your original purchase date, cost basis, and the stock’s fair market value on the transfer date. Your child will need all of that when they eventually sell.

1
Internal Revenue Service. What’s New — Estate and Gift Tax
2
Cornell Law School. Uniform Gifts to Minors Act (UGMA)
3
Internal Revenue Service. Property Basis, Sale of Home, etc.
4
Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property
5
Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
6
Internal Revenue Service. Instructions for Form 8615 (2025)
7
Internal Revenue Service. Instructions for Form 709 (2025)
8
Investor.gov. Medallion Signature Guarantees: Preventing the Unauthorized Transfer of Securities