How Is Gifted Stock Taxed When Sold? Basis, Rates, and Reporting

When you sell stock that was given to you, the IRS taxes the gain based on what the original owner paid for it, not what it was worth when you received it. So the question of how gifted stock is taxed when sold comes down to three things: the donor’s original cost (your carryover basis), how long the shares were held between the donor and you combined, and your income level in the year of the sale. Long-term gains are taxed at 0%, 15%, or 20%; short-term gains are taxed as ordinary income.

Your Cost Basis Is the Donor’s Cost Basis

The starting point for calculating tax on any stock sale is the cost basis. For gifted stock, federal law hands you the donor’s basis rather than the market value on the day of the gift.¹

Say your uncle bought shares at $20 each and gave them to you when they were trading at $50. Your basis is still $20. If you later sell at $60, you owe tax on the full $40 per-share gain, not just the $10 that accrued after the gift landed in your account. The appreciation that built up during your uncle’s ownership gets taxed to you when you sell.

This is very different from inherited stock, where the basis resets to the value on the date of death. Gifts don’t get that reset. That distinction alone often decides whether it’s better to receive shares as a gift now or as an inheritance later.

When the Stock Had Lost Value Before the Gift

The rule shifts when the shares were worth less on the gift date than the donor originally paid. In that situation you actually have two possible basis figures, and which one you use depends on how the sale turns out.²

To figure a gain, use the donor’s original cost (the higher figure).
To figure a loss, use the fair market value on the date of the gift (the lower figure).
If the sale price falls between those two numbers, you report no gain and no loss.

A concrete example. The donor paid $10,000 for shares that were worth $8,000 when you received them. Sell for $12,000 and your gain is $2,000, measured against the $10,000 basis. Sell for $7,000 and your loss is $1,000, measured against the $8,000 value. Sell for $9,000, and the transaction is a tax nothing — no gain, no loss.²

To pin down the fair market value on the gift date, the IRS averages the highest and lowest trading prices for that day. A high of $44 and a low of $40 gives a fair market value of $42.³

How Long Was It Held? That Sets Your Rate

Capital gains fall into two rate categories. Hold an asset one year or less and any gain is short-term, taxed at your ordinary income rate. Hold it more than a year and the gain qualifies for the preferential long-term rates of 0%, 15%, or 20%.⁴

For gifted stock, the donor’s holding time tacks onto yours whenever you use the carryover basis. Eleven months of the donor’s ownership plus two months of yours equals thirteen months, which is long-term.⁵ Most donors have held their shares for years before giving them away, so most recipients qualify for long-term treatment right off the bat.

There’s one exception. If the stock had lost value before the gift and you sell at a further loss using the lower fair market value basis, the holding period starts fresh on the day after the gift. The donor’s time doesn’t carry over in that scenario.⁴

2026 Long-Term Capital Gains Brackets

For the 2026 tax year, the taxable income thresholds that set your long-term rate are:⁶

0% rate: taxable income up to $49,450 single or married filing separately, $98,900 married filing jointly, $66,200 head of household.
15% rate: income above those thresholds up to $545,500 single, $306,850 married filing separately, $613,700 married filing jointly, $579,600 head of household.
20% rate: income above the 15% ceiling.

Short-term gains — where the combined holding period is a year or less — get added to your ordinary income and taxed at your marginal rate, which can run as high as 37% at the federal level.

Extra Taxes That Can Stack On Top

Net Investment Income Tax

Higher earners owe an additional 3.8% surtax on capital gains, including gains from gifted stock. It kicks in when modified adjusted gross income exceeds $200,000 for single filers or heads of household, $250,000 for joint filers, and $125,000 for married filing separately. The 3.8% applies to the smaller of your net investment income or the amount by which your income exceeds the threshold.⁷ These thresholds have never been adjusted for inflation since the tax took effect in 2013.⁸

The Kiddie Tax on Stock Gifted to Children

Gifting stock to a child can backfire at sale time. Unearned income above $2,700 for a qualifying child gets taxed at the parent’s marginal rate rather than the child’s. The rule applies to children under 18, 18-year-olds whose earned income didn’t cover more than half their support, and full-time students ages 19 through 23 in the same support situation. The first $1,350 is sheltered by the standard deduction, the next $1,350 is taxed at the child’s rate, and everything above $2,700 climbs to the parent’s bracket. The child (or parent) reports it on Form 8615.⁹ A large gain from selling appreciated gifted stock can quickly push a child into that zone.

If the Donor Paid Gift Tax, You Can Adjust Basis Up

For gifts made after 1976, if the donor actually paid federal gift tax on the transfer, you get to increase your basis — but only by the share of gift tax attributable to the appreciation. Multiply the gift tax paid by (net appreciation ÷ total value of the gift). Net appreciation is fair market value on the gift date minus the donor’s basis. Your adjusted basis can never exceed the fair market value at the time of the gift.¹

Example: donor gives you stock worth $100,000 with a $60,000 basis. Net appreciation is $40,000. Gift tax paid was $20,000. Your basis increase is $20,000 × ($40,000 ÷ $100,000) = $8,000. Your adjusted basis becomes $68,000.

This adjustment matters in relatively few cases. The 2026 annual gift tax exclusion is $19,000 per recipient and the lifetime exemption is $15,000,000 per donor, so actual gift tax is only paid on very large lifetime transfers.¹⁰ If the donor filed Form 709 but owed no tax, there is no adjustment to make.

What If You Don’t Know the Donor’s Original Cost?

You are required to keep records establishing the basis of any capital asset you own.¹¹ With gifted shares that requirement can be awkward, especially when the donor bought decades ago or is no longer around to ask. A few places to look:

The brokerage that held the shares during the donor’s ownership. Many firms keep old trade confirmations on file.
Historical price data from financial media archives or the company’s investor relations records, if you at least know the approximate purchase date.
Dividend reinvestment statements. Each reinvestment creates a separate lot with its own basis, and if specific lots can’t be identified the IRS applies first-in, first-out.¹¹

Without any records at all, the IRS can treat the basis as zero, which makes the entire sale price taxable. It’s worth spending real time chasing the number down.

Reporting the Sale

You report the sale on Form 8949, and the totals flow to Schedule D of your Form 1040.¹² Before filling anything out, gather four items: the donor’s original purchase date, the donor’s original cost, the fair market value on the date of the gift, and any gift tax the donor paid.¹³

On Form 8949, column (b) is the date acquired. If the tacking rule applies, use the donor’s original purchase date so the full holding period shows. Column (c) is your sale date. Column (e) is the cost basis.¹⁴

Watch your Form 1099-B carefully. Brokerages often report gifted stock with a zero basis or the value on the date the shares were transferred into your account, not the donor’s original cost. When the reported basis is wrong, enter adjustment code “B” in column (f) of Form 8949 and correct the basis figure.¹⁴ Skipping this step means paying tax on gains that never existed.

Don’t Forget State Tax

Federal is only part of the bill. Most states tax capital gains as ordinary income. Rates range from 0% in states with no income tax to over 13% at the top. A few states carve out exemptions or apply reduced rates to certain investment income, so the combined federal and state hit on a gifted stock sale depends heavily on where you file. Your state tax agency’s website is the place to confirm the rate and any special rules that apply.

1
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
2
Internal Revenue Service. Publication 551 – Basis of Assets
3
Internal Revenue Service. Publication 561 – Determining the Value of Donated Property
4
Internal Revenue Service. Topic No. 409 – Capital Gains and Losses
5
Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
6
Internal Revenue Service. Revenue Procedure 2025-32 – 2026 Adjusted Items
7
Internal Revenue Service. Net Investment Income Tax
8
Internal Revenue Service. Topic No. 559 – Net Investment Income Tax
9
Internal Revenue Service. Topic No. 553 – Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
10
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
11
Internal Revenue Service. Stocks (Options, Splits, Traders) – Frequently Asked Questions
12
Internal Revenue Service. 2025 Instructions for Schedule D (Form 1040)
13
Internal Revenue Service. Instructions for Form 709
14
Internal Revenue Service. Instructions for Form 8949