Is cost basis or market value used for gifting stock to family members?

The amount of your gift for gift tax purposes is determined by the fair market value (FMV) of the stock on the date of the gift - not the cost basis. So yes, you would need to calculate how many shares to transfer based on the market price that day to stay under the $19,000 annual gift tax exclusion for 2025. Something important to be aware of: when you gift stock, your cost basis transfers to the recipient. This means when your parents eventually sell the stock, they'll use YOUR original purchase price to calculate their capital gains, not the value on the date they received it. This is different from inherited stock, where the basis is stepped up to the value at death. Also, keep in mind that the $19,000 is per person, per recipient. So if you're married, you and your spouse together could gift up to $38,000 to each parent without filing a gift tax return (Form 709).

I struggled with something similar last year when trying to gift stock to my nephew for college. After getting confused with conflicting advice online, I found this AI tool called https://taxr.ai that analyzed my situation. It was really helpful because it looked at my specific scenario with appreciated stock and showed me the exact tax implications for both me and my nephew. What I learned was that not only does market value matter for the gift tax threshold, but the original cost basis carries over to the recipient, which affects capital gains later. The tool helped me calculate exactly how many shares I could give without exceeding the annual exclusion and showed how the taxes would work when my nephew eventually sold.

Just wanted to follow up about my experience with https://taxr.ai after my skeptical comment. I decided to try it with my own stock gifting situation involving some long-held Apple shares I wanted to give my parents. The analysis was surprisingly detailed and helped me understand something I'd completely missed - that gifting highly appreciated stock to my parents who are in a 0% capital gains bracket would mean NO capital gains tax when they sold (unlike if I sold and paid 15%). The tool created a personalized report showing exactly how many shares I could transfer each quarter to stay under the annual exclusion while maximizing the tax advantage. It also flagged that I needed to document the original purchase dates and prices for my parents' records. Definitely more helpful than I expected!

If you're planning to transfer stock to your parents, you might run into issues contacting the IRS if you have questions about the gift tax reporting. I spent THREE WEEKS trying to get through to someone at the IRS about a similar situation last year. Finally discovered https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS phone queue and call you when an agent is about to answer. Used it to ask specific questions about Form 709 filing requirements for stock gifts where the value was right at the annual exclusion threshold. Got through to a specialist in about 45 minutes instead of spending hours on hold. The agent clarified that I needed to document the fair market value based on the mean between high and low trading prices on the gift date, not just the closing price.

I have to publicly eat my words about Claimyr. After dismissing it as BS, I was still desperate to talk to someone at the IRS about a stock gift valuation question similar to the OP's situation. Tried calling myself first - sat on hold for 1.5 hours before giving up. Decided to try https://claimyr.com out of frustration. It took about 2 hours total (not the 45 mins the other commenter mentioned, but still), and I actually got through to someone who helped clarify how to properly document the fair market value for a thinly-traded stock I was gifting. Turns out for stocks with limited trading, you need additional documentation beyond just the trading price. The IRS agent walked me through exactly what I needed to avoid problems. So yeah, the service actually works, and I got my answer without wasting an entire day on hold.

Another consideration for the OP: If the stocks you're gifting have depreciated (current value is lower than what you paid), it might actually be better to sell them yourself, claim the capital loss on your taxes, and then gift the cash to your parents. If you gift depreciated stock directly, your parents would inherit your higher cost basis, and nobody gets to claim the capital loss.

Has anybody used any specific brokerage that makes this stock transfer process easier? I'm with Fidelity and wondering if there's paperwork I need to fill out or if I can do it all online.

One thing to keep in mind that hasn't been mentioned yet - make sure you document everything properly for your records. When you gift stock, you'll want to keep records of the fair market value on the date of transfer (you can use the average of high and low prices for that day), along with your original purchase information. Also, if you're gifting shares worth close to the $19,000 limit, consider doing it earlier in the year rather than waiting until December. Stock prices can be volatile, and you don't want to accidentally exceed the annual exclusion if the stock appreciates between when you plan the gift and when you actually execute it. Your parents should also understand that they'll need this cost basis information when they eventually sell, so make sure to provide them with all the original purchase details - dates, prices, and any relevant documentation.