He’d Bought the Same Stock Twice, in 2009 and in 2023. When He Gave His Granddaughter 100 Shares, He Picked the 2009 Lot, and the Gain He’d Carried for Sixteen Years Left His Return With It, Into Her 0% Bracket

If you own the same stock in two separate purchases, your brokerage account tracks each one as its own tax lot, with its own cost basis and purchase date. This one detail matters a great deal when you gift appreciated stock to a grandchild or other relative in a low tax bracket.

Take a grandfather who bought shares in 2009 and again in 2023, who then gives his granddaughter 100 shares and picks the 2009 lot. The gain built up over sixteen years leaves his return with the shares. If her income remains inside the 2026 0% long-term capital gains bracket, she can sell and owe no federal tax on that gain.

Lot Selection Decides How Much Gain Moves Off Your Return

Giving stock away does not trigger tax on gains for the donor. The recipient takes the donor’s original cost basis and holding period. The 2009 lot has the lowest basis and the largest unrealized gain, so giving it moves the most gain. On the other hand, the 2023 lot, which was bought at a higher basis, stays with the grandfather, so he has less gain to report if he sells it later. For a single filer in 2026, the 0% rate applies to long-term gains when taxable income is $49,450 or less.

Code Sections Behind the Carryover Gain

Under 26 U.S.C. § 1015(a), the basis of gifted property “shall be the same as it would be in the hands of the donor.” Under 26 U.S.C. § 1223(2), the recipient’s holding period includes the time the donor held the shares, so she starts with a long-term position on day one.

When a taxpayer sells or transfers stock from more than one lot, 26 CFR 1.1012-1(c) determines which shares count as transferred. IRS Publication 550 repeats the gift basis rule. The 2026 thresholds come from Revenue Procedure 2025-32, which includes changes from the One Big Beautiful Bill. The 0% ceiling is $98,900 for joint filers and $66,200 for heads of household.

Who Qualifies, and Who Hits the Kiddie Tax

The strategy works best when the recipient is an adult with low taxable income, such as a grandchild early in her career or a retired parent. Minors and dependent students often don’t qualify. Under 26 U.S.C. § 1(g)(2), the kiddie tax covers children under 18 at year-end. It also covers 18-year-olds and full-time students under 24 whose earned income does not exceed half of their support, as long as a parent is alive. In 2026, a child’s unearned income above $2,700 is taxed at the parent’s rate.

Steps to Gift the Low-Basis Lot in 2026

1. Pull the lot-level records and confirm the purchase date and basis of the 2009 shares. Give copies to the recipient, since she will report the donor’s figures when she sells.
2. Tell the broker in writing, before the transfer, which lot to move. Many accounts have a default lot method set, and an unspecified transfer may follow it.
3. Keep the gift’s value at or under the 2026 annual exclusion of $19,000 per recipient to avoid filing Form 709. Larger gifts require the form but use up the lifetime basic exclusion of $15,000,000 before any tax is due.
4. Have the recipient estimate her 2026 taxable income. As a single filer, she deducts the $16,100 standard deduction, and her gain counts on top of her wages.
5. Sell only as many shares as fit under the 0% ceiling, then report the sale on Form 8949 using the donor’s basis and purchase date.

Trade-Offs That Can Wipe Out the 0% Benefit

The 0% band caps total taxable income. Any gain above $49,450 for a single filer is taxed at 15%, so one large sale moves part of the gain into the higher bracket.

Gifting also forfeits the step-up in basis at death. Under 26 U.S.C. § 1014, heirs generally receive a basis equal to the property’s value at the date of death, which can erase a sixteen-year gain entirely. For an older donor, holding the 2009 lot until death can beat gifting it. Choosing between a lifetime gift and a legacy is the kind of ownership question that determines whether assets land with family or with lawyers, and we put the full checklist in a free estate guide.

Losing lots work in reverse. When the donor’s basis exceeds market value at the time of the gift, § 1015(a) uses that lower market value for figuring the recipient’s loss. Part of the loss is then eliminated. Publication 550 gives an example in which a recipient ends up with neither gain nor loss. Selling a losing lot directly keeps the deduction with the owner.

The gift cannot be undone, and the recipient controls the shares from that point. State income tax may still apply to her sale. The 2026 thresholds cover returns filed in 2027, and the IRS adjusts them for inflation each year, so the 0% ceiling for 2027 will change when the IRS publishes the next revenue procedure.

Contact [email protected] for any questions or corrections.