Q&A: Giving the gift of stock

November 7, 2008

I would like to transfer some stock to my son as a gift. Because of the recent downturn in the market, the stock is worth less than what I originally paid. Can I deduct my loss?

Q: I would like to transfer some stock to my son as a gift. Because of the recent downturn in the market, the stock is worth $25,000 less than what I originally paid last year. Can I deduct my loss? What other tax implications are involved?

A: You cannot deduct the loss if you gift the stock to your son, and he would not have your (higher) carryover basis. Your son would have a basis equal to the fair-market value at the time of the transfer, and neither of you would experience the capital loss. It makes much more sense for you to sell the stock, take the capital loss, and transfer the proceeds to your son. Depending on the value of the stock at the time of the transfer, you would also need to review any gift-tax implications. If the value of the stock transferred is more than $12,000 ($13,000 starting January 1), you could gift-split with a spouse or use part of your lifetime gift exclusion ($2 million as of 2008 and $3.5 million as of 2009) to avoid paying the gift tax.