Giving Appreciated Stock or Cash: Which to Give, and Why Basis Matters

Is it better to give appreciated stock or cash?

It depends on who would pay less tax on the gain. Gifted stock keeps the giver’s cost basis and holding period (IRC § 1015(a); § 1223(2)), so the recipient pays the capital-gains tax on the giver’s gain when the shares are sold. Appreciated stock suits a recipient in a lower capital-gains bracket than the giver. Cash is simpler, and stock that has fallen below its basis is usually better sold by the giver first.

Either way the gift counts the same against the $19,000 annual exclusion for 2026 (Rev. Proc. 2025-32).

This page is about choosing the asset for a gift being made now. Whether to give during life at all, rather than leave the asset at death, is a different question covered on the gifting vs. inheriting page.

Carryover basis and holding period

Cash has no tax history. A recipient who is given $19,000 in cash has $19,000 and nothing to report when spending it.

Property is different. Under § 1015(a), the basis of property acquired by gift is the same as it was in the hands of the giver. If the giver paid $4,000 for shares now worth $19,000, the recipient’s basis is $4,000, and the $15,000 of gain that built up while the giver owned them is taxed to the recipient on sale.

The holding period carries over with the basis. Under § 1223(2), a person who takes property with the prior owner’s basis also counts the time the prior owner held it. That matters because gain on a capital asset held more than one year is long-term (IRC § 1222(3)). A recipient of shares the giver has owned for years can sell the next day and still have long-term gain.

If the giver paid gift tax on the transfer, the recipient’s basis is increased by the part of that tax attributable to the appreciation, but not above the property’s value at the time of the gift (§ 1015(d); IRS Publication 551).

Stock worth less than its basis

Section 1015(a) has an exception for property that is worth less than its basis when it is given. In that case the recipient has two basis figures (Treas. Reg. § 1.1015-1(a)):

• For figuring a gain, the basis is the giver’s basis.
• For figuring a loss, the basis is the fair market value at the time of the gift.

A sale at a price between the two figures produces neither gain nor loss. The regulation’s example is property with a basis of $100,000, worth $90,000 when given, and later sold for $95,000. There is no loss, because the loss basis is $90,000. There is no gain, because the gain basis is $100,000.

The effect is that a loss cannot be handed to someone else. The decline in value that happened while the giver owned the shares can no longer be deducted as a loss by anyone once the shares are given away. A giver who sells first realizes the loss personally, subject to the ordinary limits on capital losses (IRC § 1211(b)), and can then give the cash.

Who pays the capital-gains tax

The recipient who sells reports the gain and pays tax at his or her own rate. Long-term capital gain is taxed at 0%, 15%, or 20% depending on taxable income (IRC § 1(h)). For tax years beginning in 2026, the 0% rate reaches taxable income up to these amounts (Rev. Proc. 2025-32, § 4.03):

The gain itself is part of the recipient’s taxable income, so a large gain can carry a low-income recipient out of the 0% range. State income tax may also apply.

The limit on shifting gain to children. The “kiddie tax” in IRC § 1(g) taxes a child’s net unearned income, which includes capital gain, by reference to the parents’ tax rather than the child’s own bracket. It applies to a child under 18, and to a child who is 18, or a full-time student under 24, whose earned income is not more than half of his or her support (IRS Topic No. 553). Net unearned income is measured after subtracting, in the usual case, twice a base amount that is $1,350 for 2026 (Rev. Proc. 2025-32, § 4.02), so the rule generally reaches unearned income above $2,700. Giving appreciated shares to a child in that group to sell does not move the gain into a lower bracket. Custodial accounts are covered on the gifts to minors page.

A worked example (hypothetical)

The following is a hypothetical illustration of the mechanics, not a prediction and not advice. A parent wants to give an adult child $19,000 in 2026. The parent holds shares bought several years ago for $4,000 that are now worth $19,000. Assume the parent’s long-term gains are taxed at 15%, the child is single and not subject to the kiddie tax, and the child’s 2026 taxable income including the gain is under $49,450.

Hypothetical illustration. $19,000 less $4,000 is a $15,000 gain; 15% of $15,000 is $2,250; $19,000 less $2,250 is $16,750. The rates are assumptions chosen to show the mechanics. Actual results depend on each person’s taxable income, the net investment income tax where it applies, and state tax.

Reverse the facts and the answer reverses. Suppose the shares had cost $30,000 and are worth $19,000. If the parent gives them and the child sells for $19,000, the child has no loss, because the loss basis is the $19,000 value at the gift. No one can deduct the $11,000 decline as a loss. If the parent sells first, the parent has an $11,000 capital loss and gives $19,000 in cash.

Valuing the gift and the records to hand over

For gift tax, a gift of property is measured by its value on the date of the gift (IRC § 2512(a)). The giver’s basis is irrelevant to that figure. For publicly traded stock the value per share is the mean between the highest and lowest quoted selling prices on the gift date (Treas. Reg. § 25.2512-2(b)). Shares that traded between $99 and $101 on the day are valued at $100 each, whatever the closing price was.

That value is what counts against the annual exclusion. A gift of stock worth more than the exclusion to one person requires a gift-tax return, on which listed shares are easy to disclose; see Form 709. Married givers can double the amount with gift-splitting.

The recipient cannot compute gain or loss without the giver’s figures. Publication 551 says that to figure the basis of property received as a gift, the recipient must know the giver’s adjusted basis just before the gift, the fair market value at the time of the gift, and any gift tax paid. The records the recipient needs, in writing, are:

• the giver’s adjusted basis in the shares given;
• the date or dates the giver acquired them;
• the date of the gift and the value on that date; and
• any gift tax paid on the transfer.

If the recipient cannot establish the giver’s basis, the statute leaves it to the IRS to find the facts or, failing that, to use the value at the approximate date the giver acquired the property (§ 1015(a)).

Holding until death, or giving to charity

Holding until death. Property acquired from a decedent generally takes a basis equal to its fair market value at the date of death (IRC § 1014(a)), not the decedent’s cost. A giver who expects to hold some assets for life therefore has a reason to give cash or high-basis assets now and keep the most appreciated shares. See step-up in basis and gifting vs. inheriting.

Giving to charity. Charity is the contrasting case. For stock held more than one year, the income-tax deduction for a gift to a qualified organization is generally the fair market value, including the appreciation. The deduction is reduced by gain that would not have been long-term had the shares been sold, so stock held one year or less is generally deductible only up to its basis (IRC § 170(e)(1)(A)). Gifts to most private foundations and the percentage limits on deductions follow further rules in IRS Publication 526. The charitable giving section covers the vehicles.

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