Gifting Stocks and Mutual Funds

John Csargo

Considering a Gift to a Relative or Charity?  If you want to make gifts to favorite relatives or charities, a great strategy to consider is gifting stocks or mutual funds. Let’s review some solid principles to use while gifting equities.

Gifts to Relatives

Don’t give away loss positions in stock or mutual funds, a much better strategy for these equites is to sell the shares and book the resulting tax-saving capital loss. Then, you can give the sales proceeds to your relative.

On the other hand, you should give away appreciated stock or mutual funds to relatives. Most likely, they will pay lower tax rates than you would pay if you sold the same shares. Many of your relatives are in the 0% federal income tax bracket for long term capital gains which apply to shares owned for over a year. For this test, the more-than-one-year rule for gifted shares, counts your ownership period plus the gift recipient’s ownership period. Even if the appreciated stock or mutual funds have been held for a year or less before being sold, your relative will probably pay a much lower tax rate on the gain than you would.

Gifts to Charities

The principles for gifts to relatives apply to donations to charities. You should sell loss positions and claim your capital loss. Then, give the sales proceeds to your charity and claim the charitable deduction (assuming you itemize your deductions). Following this strategy delivers a double tax benefit: tax-saving capital losses plus tax-saving charitable donation deductions.

On the other hand, donate appreciated securities instead of giving away cash since donations of publicly traded securities held for over a year give you a charitable deduction equal to stock market value at the time of the gift (assuming you itemize). Keep in mind, when you donate the appreciated securities, you have also avoided capital gains taxes on the gain. This strategy saves tax twice: you avoid capital gains income while getting a charitable deduction for those that itemize their deductions.

If you have any questions on individual tax planning strategies, please contact John Csargo at or 952-854-4244.


Cash is King Still Reigns


Tax Tip - LLCs