There are potential tax implications for the family member who receives the shares. Travis Gatzemeier, CFP, of Kinetix Financial Planning in Flower Mound, Texas, says: “The recipient of the stock doesn’t owe any capital gains taxes until the shares are sold. Any tax liability regarding capital gains is determined by the cost basis and holding period of the person who gifted the shares.”
He adds: “If the stock is gifted at a price below the donor’s cost basis and sold at a loss, the recipient’s cost basis and holding period are determined by the fair market value on the date of the gift. If the price of the shares increases to a level beyond the donor’s original cost basis, then their cost basis and holding period come back into play in calculating the recipient’s capital gain.
“If the shares are sold at a price above the fair market value on the date of the gift, but below the donor’s original cost basis, there is no gain or loss recognized on the sale by the recipient of the shares,” Gatzemeier says.
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