Key Takeaways
- A grandchild who gets appreciated stock as a gift keeps the grandparent’s holding period, so they can sell it right away as a long-term gain, and that gain may be taxed at 0%.
- The kiddie tax can apply to a full-time student until 24 if their earned income doesn’t pay for more than half of their own support.
- A grandparent who gives $19,000 of shares bought for $4,000 hands over a $15,000 gain, and $12,300 of that gain is above the kiddie tax’s $2,700 threshold for unearned income.
- The grandchild can stay under the threshold by selling a few thousand dollars of shares a year, or by waiting until the year they turn 24.
If you’re thinking of giving a grandchild some stock this December, the IRS just made next year’s gift a little bigger. On Nov. 5, it raised the annual gift exclusion to $20,000 per person for 2027, up from this year’s $19,000.
And shares with a big gain in them can look like the perfect present for a college student, who may be able to sell them at a 0% rate. But for a full-time student, the kiddie tax can apply until 24, and that’s an easy one to miss.
A $15,000 gain that’s long-term from day one
Let’s take a hypothetical: you’re 72, and you give your 20-year-old grandchild, a full-time college student, $19,000 of stock you bought years ago for $4,000. That’s exactly this year’s annual exclusion, so if it’s your only gift to them this year, you have no Form 709 to file.
Since the shares are worth more than you paid, your grandchild takes on your $4,000 basis, and with it your $15,000 of untaxed gain. And since their basis is yours, their holding period counts as starting the day yours did, so even a sale the week after the gift is a long-term gain.
For 2026, the 0% long-term rate covers taxable income up to $49,450 for a single filer, the gain counted in it. A student with little other income could fit the whole $15,000 inside that.
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College students can owe the kiddie tax until 24
The kiddie tax is a special tax on a child’s interest, dividends and other unearned income above $2,700, figured on Form 8615, and capital gains count toward it. It covers children under 18. It also covers full-time students who are at least 19 and under 24 at the end of the year, if their earned income didn’t pay for more than half of their own support.
Your 20-year-old grandchild meets the age test now and will through the year they turn 23. So whether the kiddie tax applies to them depends on who pays their way. A student who works and pays for more than half of their own support is outside it. A student whose parents cover tuition, rent and the meal plan, with a summer job paying for the rest, probably isn’t.
In that case, with no other unearned income, $12,300 of the $15,000 gain is above the $2,700 line, and Form 8615 figures the special tax on that part. So the 0% rate the gift was meant to capture may not cover all of it. And dividends count toward the same $2,700, so a dividend-paying stock leaves less room for the gain.
Fortunately, there’s no rush to sell
The $2,700 is a yearly threshold, so your grandchild has some say over how much gain they take in any one year. They can sell in pieces: at today’s price, each dollar of the shares carries about 79 cents of gain, so selling $3,420 of stock a year keeps the gain at $2,700 (assuming no other unearned income; a higher share price means a smaller sale). Four years of that, through the year they turn 23, covers $13,680 of the shares and $10,800 of the gain.
Or they can hold off. Since your holding period came with the shares, a sale years from now is still long-term, and the year they turn 24, they’re past the kiddie tax’s age limit. The catch is that a graduate with a full-time salary may have moved past the 0% range by then.
Still a great gift, with a plan
The way I see it, appreciated stock is still one of the best things you can hand a grandchild in college, since your holding period and their low income can let them cash in most of a $15,000 gain at 0%. But unless they pay more than half of their own way, I’d settle the sale plan before the shares change hands: a few thousand dollars of gain a year, or one sale the year they turn 24.
If you’re planning a second gift in January, the IRS has already published 2027’s inflation adjustments in Rev. Proc. 2026-35, so check next year’s kiddie tax threshold before your grandchild sells. And in any year a job pays for more than half of their support, the kiddie tax doesn’t apply, so they could sell what’s left that year.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
