Tax Implications for Stock Received as a Gift

by Alexis Lawrence

When you receive stock shares as a gift, you become entitled to any money earned from those shares, including any quarterly dividends paid out to stockholders. Money earned from stock, whether through dividends or the sale of shares, does have income tax implications, as do any stock losses.

Tax on Stock

When you receive a gift of shares of stock from an individual, you owe no taxes on those shares for the tax year in which they were gifted unless you sell the shares or receive a dividend based on your ownership of the shares. Even if the stock grows in value during the tax year, you are not required to report the stock as income.

Stock Dividends

You must report as income any dividends paid on the stock. You will be required to pay taxes on dividend distributions just as on any other source of income.

Capital Gain

If you decide to sell the stock shares that you receive as a gift during a tax year, you must declare the profit, which is considered a capital gain. The capital gain of the stock does not usually equal the amount for which the stock shares are sold. Instead, it equals the total for which the stock shares are sold minus the purchase price of the original stock shares. If the stock shares were purchased for $20, for example, and you sell the shares for $100, you must pay tax on $80.

Capital Loss

Gift stock can also lose money, and this can be beneficial to you on your taxes. Even though you did not buy the shares, you may declare the stock as a capital loss, which generally decreases the amount you owe on taxes. To report a capital loss from a gift of stock, you must know the original purchase date of the stock shares. The capital loss is figured using either the value of the stock shares on the date they were purchased or the value of the shares on the day the stock was given to you, with the lower of the two numbers serving as the base for the loss.