Is it legal to gift parents appreciated stock and receive cash gifts back?

While I'm not a tax attorney, I can tell you this approach raises some red flags. The IRS looks at the substance of transactions, not just their form. What you're describing sounds like a step transaction - where separate steps are taken to achieve a result that would be taxable if done directly. If you were to sell the appreciated stock yourself, you'd owe capital gains tax. By gifting it to your parents who then gift you cash, it appears you're trying to achieve the same economic result (converting stock to cash) while avoiding the tax. The IRS could view this as a disguised sale rather than genuine gifts, especially if the timing is close and there's an understanding between you and your parents about the arrangement. The annual gift exclusion is indeed $17,000 per recipient for 2025, but gifts should be made with "detached and disinterested generosity" to truly qualify as gifts for tax purposes.

Just wanted to share my experience with something related. I was in a similar situation with some tech stocks that had blown up, and I found this service called taxr.ai (https://taxr.ai) that really helped me understand the gift tax implications. They have this feature where you can upload your specific scenario and get detailed analysis of how the IRS might view it. I uploaded my portfolio details and explained exactly what I was thinking about doing with family gifts, and they flagged several issues I hadn't considered. They pointed out specific tax court cases where the IRS had successfully challenged similar arrangements. Saved me from making what could have been a costly mistake!

I tried taxr.ai after seeing it mentioned here and I'm honestly impressed. I uploaded my brokerage statements and explained my situation with some heavily appreciated Tesla stock I wanted to gift to family members. They highlighted a specific IRS ruling (Revenue Ruling 85-13) that would have applied to my situation and potentially caused problems. What really helped was their explanation of the "step transaction doctrine" and how it applied to my specific holdings and family situation. They even provided alternatives like using a charitable remainder trust that I hadn't considered. Definitely recommend checking them out if you're dealing with complicated stock gifting situations!

Look, if you're having trouble getting clear answers on this, it might be worth trying to speak directly with the IRS. I know that sounds awful, but I used this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes after spending DAYS trying on my own. I had a similar question about gifting assets between family members and was getting different answers from every source. The IRS agent I spoke with explained exactly how they view arrangements where there's an expectation of reciprocal gifts. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Was totally worth it to get a definitive answer directly from the source instead of risking an audit later.

Ok I need to eat my words about Claimyr. After posting that skeptical comment I decided to try it because I was desperate to resolve an issue with a missing refund. Not only did they get me through to the IRS in about 20 minutes (after I'd spent 3 separate days trying), the agent was able to find my refund and fix the issue that was holding it up. For what it's worth, I also asked about this stock/cash gift swap question while I had the agent on the line. They confirmed what others have said - if there's an understanding or agreement between parties that one gift is in exchange for another, it's not considered a true gift and could be recharacterized as a sale. They literally used the phrase "substance over form doctrine.

Why not just sell a small portion of your appreciated stock each year to stay in a lower tax bracket? My spouse and I do this to manage our capital gains. We're careful to only sell enough to stay in the 0% capital gains bracket (income under $89,250 for 2025 for married filing jointly). If you're in a higher bracket, you could still strategically sell some stock each year to spread out the tax hit instead of trying complicated gift arrangements that might attract attention.

Just wanted to add - this sounds a lot like what's called a "step transaction" in tax law. My brother tried something similar with some rental property and his kids a few years back. The IRS audited him and treated the whole thing as if he had just sold the property himself. The agent told him they look for "interdependent steps" where one wouldn't happen without the other. If your parents wouldn't be giving you cash without getting the stock first, that's a red flag. Better safe than sorry with tax stuff!

I'm a newcomer here but have been following this thread with interest since I'm in a similar situation with some appreciated NVIDIA shares. Based on all the responses, it seems pretty clear that the IRS would likely view your proposed arrangement as a disguised sale rather than legitimate gifts. What really stood out to me from the discussion is that even spacing out the transactions won't necessarily protect you if there's an understanding between you and your parents. The "substance over form" principle means they look at what you're actually trying to accomplish, not just the technical structure. Have you considered looking into tax-loss harvesting with other positions to offset some of the gains? Or maybe exploring whether you have any losses from previous years that could be carried forward? Sometimes the direct approach of just paying the capital gains tax ends up being simpler and less risky than trying to engineer around it. The long-term capital gains rates aren't as painful as regular income tax rates, especially if you can time the sale strategically.

As someone new to this community, I've been reading through this discussion with great interest since I'm dealing with a similar situation involving some appreciated mutual fund positions. The consensus here seems pretty clear that what you're proposing would likely be viewed as a step transaction by the IRS. What I found most helpful from this thread is understanding that the IRS focuses on the economic substance rather than the technical form of transactions. Even if you structure it as separate "gifts," if there's an implicit understanding that one is contingent on the other, you're essentially trying to convert appreciated assets to cash without paying capital gains - which is exactly what would happen if you just sold the stock directly. I've been researching alternatives for my own situation, and a few options that might be worth exploring: 1) Securities-based lending where you borrow against your appreciated positions (though this has margin call risks), 2) Charitable remainder trusts if the amounts are substantial enough and you have charitable intent, or 3) Simply accepting that capital gains tax is the cost of accessing your gains and planning the timing strategically. The peace of mind of staying clearly within tax law boundaries is probably worth more than the potential tax savings from a questionable arrangement. Thanks to everyone who shared their experiences - this has been really educational!

Hi everyone! New member here, and this thread has been incredibly enlightening. I'm facing a similar situation with some Apple stock I've held for years that's appreciated significantly. After reading through all the responses, it's clear that trying to structure reciprocal gifts with family members to avoid capital gains would likely run afoul of the step transaction doctrine. The IRS really does look at the substance of what you're trying to accomplish rather than just the technical form. I wanted to add one more consideration that hasn't been mentioned yet - depending on your state's tax laws, the timing and location of the sale might matter. Some states have no capital gains tax at all, so if you're planning to move or have dual residency options, that could be worth factoring into your decision. Also, for those considering the securities-based lending route that Faith mentioned, I've looked into this with my broker and found that most major firms offer portfolio lending at rates that are often lower than mortgage rates. The loan-to-value ratios are typically 50-70% depending on the volatility of your holdings. It's definitely worth exploring as a legitimate alternative to trying to engineer around the tax code. Thanks to everyone who shared their experiences and insights - this community is a great resource for navigating these complex situations!