Is cost basis or market value used when gifting stock to relatives?

When you gift stock to someone, the IRS looks at the fair market value on the date of the gift to determine if you've exceeded the annual gift tax exclusion (which is $19,000 per recipient for 2025). So yes, you would need to calculate how many shares to transfer based on that day's market value to stay under the $19k limit. What's interesting about gifted stock is that the recipient (your parents) generally takes on your original cost basis. This means when they sell, they'll calculate any capital gains using YOUR original purchase price, not the value when you gifted it. They also take on your holding period, which determines whether any gains would be long-term or short-term. There's one exception though - if the stock's value at the time of gifting is LESS than what you paid for it, and your parents later sell it at a loss, they have to use the fair market value at the time of the gift as their basis for calculating the loss.

After struggling with a similar situation last year when gifting stocks to my sister, I discovered taxr.ai (https://taxr.ai) and it was a game-changer. I uploaded my brokerage statements showing the original purchases and transfer dates, and it automatically calculated exactly how many shares I could give while staying under the gift tax limit. The tool also gave me a document explaining the cost basis transfer rules that my sister could keep for her records when she eventually sells. What I really liked was that it made it super clear what information needed to be documented during the transfer so there wouldn't be confusion later about the original purchase dates and prices.

I wanted to follow up about my experience with taxr.ai after trying it for my stock gifting situation. My concerns about handling complex cost basis calculations were completely addressed. I have shares purchased across 15 different dates with varying prices, and the tool organized everything perfectly. What really impressed me was how it created a detailed gift letter document that I could give to my nephew along with the shares. The document clearly explained which lots were transferred, the original purchase dates, and what his tax obligations would be when he eventually sells. This solved the exact problem I was worried about! Now neither of us will have to scramble to figure out the cost basis years from now.

If you're trying to contact the IRS to get clarification on gift tax rules for stocks, good luck getting through! I spent DAYS trying to reach someone at the IRS about this exact issue. After endless hold times, I finally discovered Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that I needed to document not just the market value on the gift date (for gift tax exclusion purposes) but also provide my original cost basis information to the recipient for when they eventually sell. They even emailed me the specific publication sections that explained the rules. Saved me hours of frustration and gave me confidence I was doing it correctly.

I need to eat my words about Claimyr. After my skeptical comment, I was still stuck trying to get clarity on a stock gifting situation similar to yours. Out of frustration, I decided to try it anyway. I'm shocked to say it actually worked! I was connected to an IRS representative in about 30 minutes. The agent walked me through exactly how to document both the fair market value (for the gift tax exclusion limit) and the original cost basis transfer information. They even sent me a follow-up email with the specific forms I needed. Definitely worth it for the peace of mind of knowing I'm handling this correctly. Sometimes being proven wrong is actually a good thing!

One thing nobody's mentioned yet - if you're gifting appreciated stock, consider the recipient's tax bracket. If your parents are in a lower tax bracket than you, they'll pay less in capital gains tax when they sell than you would. That's actually a tax-efficient strategy. On the other hand, if they're in a higher bracket, it might make more sense to sell it yourself and gift the cash. Just something to consider beyond the mechanics of how to make the gift.

Can I just point out that all this complicated gifting strategy might not even be necessary depending on how much stock we're talking about? The $19k limit is PER RECIPIENT, PER YEAR. So if you're gifting to both your mom and dad, you could actually gift up to $38k total ($19k to each) without any reporting requirements. And if you're married, both you and your spouse can each give $19k to each parent, meaning up to $76k total ($19k × 2 givers × 2 recipients) without triggering gift tax reporting.

Just want to add a timing consideration that might help with your volatile stock situation. Since you need to use the fair market value on the actual date of transfer to determine if you're under the $19k limit, you might want to monitor the stock price and choose a day when it's trading lower if possible. For example, if your stock is currently worth $25k but you only want to gift $18k worth, you'd need to transfer fewer shares on a high-price day versus a low-price day. This gives you some flexibility to maximize the number of shares you can gift while staying under the annual exclusion limit. Also, make sure you document everything clearly - the exact number of shares transferred, the closing price on the transfer date, and your original purchase information. Your parents will need all this information when they eventually sell, and having it organized from the start will save everyone headaches later.