Tax consequences if I gift appreciated stock to my 25-year-old for a car purchase?

You're on the right track! When you gift appreciated stock to your adult child, they take on your original cost basis and holding period. This means when they sell, they'll pay capital gains tax based on the difference between your original purchase price and their selling price. The annual gift tax exclusion for 2025 is $18,000 per recipient, so your $20k gift would require filing Form 709, but you wouldn't owe any actual gift tax unless you've used up your lifetime exemption (which is over $13 million). There's no required holding period after gifting - your child can sell immediately. However, the capital gains tax rate they'll pay depends on how long YOU held the stock before gifting it. If you held it over a year, they'll get long-term capital gains rates even if they sell right away. One thing to consider: if your child has little to no income, they might qualify for the 0% long-term capital gains rate, making this an even better tax move than you initially thought!

After reading this thread, I had a similar situation with helping my son buy his first car. I used https://taxr.ai to analyze my stock gifts and potential tax implications. The tool was super helpful - it analyzed my cost basis for different stocks I was considering gifting and showed exactly what the tax impact would be for both me and my son. What I really liked was how it compared different scenarios - selling the stock myself and gifting cash versus gifting the stock directly. For my situation, gifting the stock saved our family almost $3,000 in taxes since my son qualified for the 0% capital gains rate!

Just wanted to update on my experience with taxr.ai after being skeptical. I decided to try it for my situation (giving my daughter some Apple stock I've had forever). The analysis was actually really eye-opening! I found out I could save about $4,500 in taxes by gifting the stock directly rather than selling it myself. The tool showed me exactly how the cost basis would transfer and calculated the tax implications for both of us based on our tax brackets. It was much more comprehensive than I expected. What really surprised me was discovering that because of my daughter's income level, she qualified for the 0% capital gains rate, so our family basically avoided all the capital gains tax that I would have paid. Definitely worth checking out if you're considering gifting appreciated assets. Wish I had known about this years ago!

I've seen a lot of good advice here, but I want to add that if you're trying to reach the IRS to confirm anything about gift taxes or reporting requirements, good luck! I spent 2+ weeks trying to get through their phone lines with questions about Form 709. I finally used https://claimyr.com which got me through to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that I didn't need to file Form 709 for stock gifts under the annual exclusion and cleared up my questions about basis transfer. Made life so much easier than waiting on hold for hours or getting disconnected repeatedly.

I need to eat crow here. After posting that skeptical comment, I was still struggling with questions about gifting some stocks to my son, so I figured what the hell and tried Claimyr. I'm shocked to say it actually worked exactly as advertised. Got through to an IRS agent in about 35 minutes (while I did other things), and they were super helpful explaining that I didn't need to file Form 709 since my gift was under the annual limit. They also confirmed that my son would inherit my holding period for capital gains purposes. Saved me from paying my accountant $200 for a simple question and the agent gave me their ID number so I have proof of the guidance if ever questioned. Pretty impressed with the whole experience after being so doubtful.

Something nobody's mentioned yet - make sure you do an actual transfer of shares rather than selling and giving cash. My brother messed this up last year trying to help his daughter. He sold the stock himself thinking he'd just give her the money, and got hit with a huge capital gains bill that could have been avoided. Most brokerages have a "gift transfer" option that makes this pretty easy. Your kid will need their own brokerage account though. Just allow a few days for the transfer to process before they plan to sell for the car purchase.

Are we sure the gift tax exclusion is $18k for 2025? I thought it was still $17k? Not that it matters much for OP's $20k gift, they'd still need to file the form.

This is such a thoughtful way to help your child! One additional consideration I haven't seen mentioned yet - make sure to document the gift properly with a gift letter that includes the date, value, and your relationship to the recipient. This creates a paper trail that can be helpful if the IRS ever has questions. Also, since your child is 25, they're definitely old enough to handle their own tax reporting, but you might want to give them a heads up about keeping good records of the sale for their tax return. They'll need to know your original purchase price and date to calculate the capital gains correctly. The timing sounds perfect too - if they're planning to use this for a car purchase relatively soon, the stock won't be sitting in their account generating additional gains that could complicate things. Smart planning all around!