What are the tax consequences of gifting appreciated stock to my daughter?

When you gift stock, your daughter inherits your cost basis and holding period. This means even though there was no appreciation between when you gave her the stock and when she sold it, she'll likely owe capital gains tax on the difference between the original purchase price (your cost basis) and the sale price. For example, if you bought the stock for $2,000 and it was worth $10,000 when you gifted it, your daughter's cost basis would be $2,000. If she sold it for $10,000, she would owe capital gains tax on the $8,000 gain. The tax rate depends on how long you held the stock before gifting (if more than a year, she gets long-term capital gains rates). As the giver, you don't owe any taxes as long as you stayed under the annual gift tax exclusion (currently $17,000 per recipient for 2023). You're correct that you don't owe gift tax, but your daughter does still owe capital gains tax on the appreciation that occurred while you owned it.

I found myself in almost the exact same situation last year when trying to help my son with some expenses. After spending hours researching and getting nowhere, I tried this AI tax assistant at https://taxr.ai that specifically analyzes situations like gifts of appreciated assets. You upload your documents or just describe your situation, and it breaks down the tax implications for both parties. It confirmed what the previous comment mentioned - when gifting stocks, your original cost basis transfers to the recipient. What I found particularly helpful was that it showed me exactly what forms my son would need to file and how to report the transaction correctly. It also analyzed whether it would have been better to sell the stocks myself versus gifting them based on our respective tax brackets.

Just wanted to update after trying out taxr.ai for my situation with my dad's stock gift. It was actually really helpful! It confirmed we needed to document his original purchase price and date (which was from the 90s and took some digging). The tool explained that when I sell the gifted stock, I'll need to use his original cost basis to calculate my gain, and it showed how to report it properly on my tax return. It also flagged that I might qualify for the 0% long-term capital gains rate since I'm still in graduate school with limited income. This could save us thousands in family taxes compared to if my dad had sold the stock himself at his higher tax bracket. Definitely worth checking out if you're in a similar situation.

After reading these replies, I'm seeing a ton of misinformation. I tried calling the IRS directly for clarification on a similar gifting situation last month, and it was impossible to get through. After being on hold for over 2 hours twice, I gave up and tried https://claimyr.com - they have this service where they basically wait on hold with the IRS for you, then call you when an actual agent is on the line. You can see how it works at https://youtu.be/_kiP6q8DX5c I was super skeptical, but they actually got me through to a real IRS agent within a few hours (while I went about my day). The agent confirmed exactly what others are saying here - your daughter inherits your cost basis and holding period. She definitely needs your original purchase information to properly report her gain, and yes, she'll owe capital gains tax on the full appreciation since you bought the shares, not just since she received them.

I have to admit I was really doubtful about that Claimyr service mentioned above. I've been trying to get clarity on some gifted investments for weeks with no luck. But I bit the bullet and tried it yesterday, and wow - they actually got me through to the IRS in about 90 minutes while I was working on other things. The IRS agent I spoke with confirmed everything everyone's saying here about inherited cost basis, but also gave me some additional insights specific to my situation. She explained that I need to file Form 8949 with my return showing the sale, and that I should absolutely get documentation from the original owner about their purchase price and date. If I can't get the original basis information, there are special rules for determining basis that the agent walked me through. Saved me a potential audit headache for sure.

Just to clarify a point that I think is causing confusion: there are actually TWO separate tax issues here. 1) Gift tax: This applies to the giver (you). As long as you stay under the annual exclusion ($17,000 in 2023), you don't need to file a gift tax return or pay any gift tax. So you're good on this front. 2) Capital gains tax: This applies to the recipient (your daughter) when she sells. Since gifted property carries over the original cost basis, she'll owe capital gains tax on the difference between YOUR original purchase price and HER selling price. The "no change in value while she held it" doesn't matter for tax purposes - what matters is the change from your original purchase to her sale.

Has anyone here actually gone through an IRS audit over gifted stocks? I'm worried because I did something similar last year but don't have great records of my original purchase from like 15 years ago. What happens if you can't prove the original cost basis?