If you own stock that has grown a lot, selling it can mean a federal capital gains rate of 15% or 20%, plus capital gains tax in California at your regular state rate. But the federal rate depends on the income of whoever sells. If a family member you already want to help has a low income, giving them the shares instead of cash can move the gain into a 0% federal bracket.
The 0% bracket for long-term gains in 2026
A long-term capital gain is profit on an investment held more than one year. Under Rev. Proc. 2025-32, for the 2026 tax year the 0% rate applies up to these amounts of taxable income:
| 2026 filing status | 0% rate applies up to | 15% rate applies up to |
|---|---|---|
| Single | $49,450 | $545,500 |
| Married filing jointly | $98,900 | $613,700 |
| Head of household | $66,200 | $579,600 |
Taxable income here means income after deductions, and the gain itself counts. The worksheet in the Form 1040 instructions stacks the gain on top of the seller's other taxable income, so only the room left under the threshold is taxed at 0%. A retired parent with a modest pension may have a lot of room. You, in a high bracket, may have none.
How gifting the shares moves the gain
Giving away stock does not erase the gain. It moves it. Under Publication 550, when the stock is worth at least your adjusted basis at the time of the gift, the recipient's basis (the cost used to figure gain) is your adjusted basis, plus part or all of any gift tax paid in some cases. Their holding period starts on the day yours did. So shares you have held for five years are long-term in their hands on day one.
When the recipient decides to sell, the gain is theirs and is taxed at their rates. Do not arrange the sale for them. If you keep any power over what happens to the shares, the gift may not be complete (more on that below). If their taxable income, including the gain, stays under the 2026 threshold, the gain is taxed at 0% federally. Give them your purchase records, since they need your basis and dates to report the sale.
If the recipient wants to keep the investment, they can choose to buy it back right away. That choice is theirs, not yours. The wash sale rule, which disallows a loss when you rebuy the same stock within 30 days, applies only to sales at a loss. Shares bought back at today's price get a new, higher basis.
A worked example with invented numbers
Take an invented Torrance business owner in the 15% capital gains bracket. Years ago they bought shares for $10,000. Today the shares are worth $40,000, a $30,000 long-term gain. Selling would cost them $4,500 in federal tax at 15%, ignoring state tax and any other federal tax on investment income.
Instead, they give the shares to a parent who files single and has $15,000 of taxable income in 2026 before the sale. The parent sells. Here is how the parent's $30,000 gain is taxed federally under two income levels:
| Parent's 2026 taxable income before the sale | $15,000 | $35,000 |
|---|---|---|
| Room left under $49,450 | $34,450 | $14,450 |
| Gain taxed at 0% | $30,000 | $14,450 |
| Gain taxed at 15% | $0 | $15,550 |
| Federal tax on the gain | $0 | $2,332.50 |
In the first case the whole gain is taxed at 0%. In the second, more than half spills into the 15% rate, and the federal savings over selling it yourself shrink to about $2,167. The parent's income decides the result, so run the numbers before the gift, not after the sale.
The rules that decide whether it works
This strategy is simple, but several rules sit around it. Before you transfer any shares, check each one:
- Holding period: the gain is long-term only if your holding period plus theirs is more than one year when they sell.
- A real gift: under Treasury Regulation 25.2511-2(b), a gift is complete only when you give up control and keep no power to change what happens to the shares. The recipient decides whether to sell and what to do with the money.
- Gift tax return: if your gifts to one person other than your spouse total more than $19,000 in 2026, you generally must file Form 709 by April 15 of the next year, even when no tax is due.
- Kiddie tax: a child's unearned income above a threshold ($2,700 for 2025) can be taxed at the parent's rate if the child is under 18, or is 18 or a full-time student age 19 to 23 whose earned income is not more than half of their support.
- Social Security: the gain counts as income when figuring how much of the recipient's Social Security benefits are taxable.
The gift tax return rule comes from the Form 709 instructions. Filing usually does not mean paying. The amount over $19,000 reduces your lifetime exclusion, which Rev. Proc. 2025-32 puts at $15,000,000 for 2026. The kiddie tax ages come from the 2025 Form 8615 instructions, and the Social Security rule from Publication 915. For a retired parent, more taxable benefits can eat into the savings, so include them in the math.
How California treats the capital gains tax
California has no special rate for capital gains. The Franchise Tax Board (FTB) says the state has no lower rate for capital gains and taxes them as ordinary income. A recipient who is a California resident will still owe state tax on the gain at their own rates, which for a low-income parent may be well below yours.
California is also a community property state. The Form 709 instructions treat a gift of community property as made one-half by each spouse. In their example, a $100,000 gift of community property is $50,000 from each spouse, and each spouse must file a gift tax return. If you are married and the shares are community property, plan for that.
Capital gains tax in California starts with who sells
This only makes sense if you already want to give the money away. The gift is real, and the recipient owns the shares and the cash. If that fits your plans, it belongs with your other moves in year-round tax planning, timed before the recipient sells. If you hold appreciated stock and want to see how federal and capital gains tax in California would compare for a gift versus a sale, Book Your Free Consultation and our team will run the numbers with you.
