He Bought the Same Stock Twice, in 2009 and in 2023. When He Gives His Granddaughter 100 Shares, He’ll Pick the 2009 Lot, and the Gain He’s Carried for Sixteen Years Will Leave His Return With It, Into Her 0% Bracket

If you own the same stock in two lots bought years apart, the lot you give away decides who pays the tax. When you gift shares to a grandchild, you can choose your oldest, lowest-cost shares, and the gain built up in them then moves off your tax return and onto hers. If her income is low enough, she can sell and owe nothing at the 0% long-term capital gains rate. This way of gifting appreciated stock to a grandchild relies on a rule most investors never use, called specific share identification.

How Your Oldest Shares Pass Their Gain to a Grandchild

Let’s imagine this individual bought shares of one company in 2009 and bought more in 2023, and the 2009 shares cost far less, so they carry a much larger unrealized gain. When he gifts 100 shares, he tells his broker to transfer the 2009 lot, and his granddaughter gets those shares with his original cost basis and his original purchase date. As a result, he reports no sale.

The gain now goes to her. If she sells while her taxable income stays inside the 0% bracket, she owes no federal tax on it. He keeps the 2023 lot, which has a higher basis and much less built-in gain.

Four Federal Rules Behind the Transfer

The reasoning for this scenario basically breaks down to four different federal rules:

• Carryover basis. Under 26 U.S.C. § 1015(a), a gift keeps the basis it had in the giver’s hands. There is one exception. If that basis is higher than the stock’s market value on the day of the gift, the market value is used to figure any loss.
• Inherited holding period. 26 U.S.C. § 1223(2) adds the giver’s holding period to the recipient’s whenever the recipient keeps the giver’s basis. IRS Publication 550 states that her holding period starts the same day yours did. Shares bought in 2009 count as long-term the day she receives them.
• Choosing the lot. 26 CFR 1.1012-1(c)(1) covers anyone who “sells or transfers” shares bought on different dates. If you don’t identify a lot, the earliest one is used. For shares held at a broker, 26 CFR 1.1012-1(c)(3) applies. It requires you to name the lot when you transfer and to obtain written confirmation from the broker within a reasonable time.
• Gift exclusion. For 2026, you can give each person up to $19,000 a year without filing a gift tax return.

Who Qualifies and Who Gains Little

Scenarios like this one work best with long-term winners. Hold them in a taxable brokerage account, and the recipient should have low taxable income, such as a grandchild early in her working life. It does nothing for shares in an IRA or 401(k), because those accounts have no capital gains to shift. Gifts to a spouse follow separate basis rules under 26 U.S.C. § 1015(e). Shares worth less than you paid are also a poor fit. Because of the loss-basis rule in Section 1015(a), the recipient can’t claim your paper loss.

How to Move the Right Lot in 2026

1. Pull the cost-basis records for each lot and note which purchase has the lowest basis.
2. Value the gift on the transfer date. A gift above $19,000 to one person requires a gift tax return. You generally owe gift tax only after your lifetime gifts use up the 2026 lifetime exemption of $15,000,000.
3. Tell your broker in writing to transfer the 2009 lot, and keep the written confirmation the regulation requires.
4. Give your granddaughter your basis and purchase date. If she doesn’t have them, Section 1015(a) tells the IRS to estimate your basis, so hand over the records up front.
5. Check how much room she has in the 0% bracket. The 0% rate applies only to taxable income up to an annual ceiling. Her income is counted after the 2026 single standard deduction of $16,100. Gains that exceed the ceiling are taxed at a higher long-term rate.

Kiddie Tax Can Erase the 0% Rate

The main limit is the kiddie tax in 26 U.S.C. § 1(g), which taxes some of a child’s investment income at her parents’ rate. It applies to a child under 18 at the end of the year. It also applies to an 18-year-old, or a full-time student under 24, whose earned income is no more than half of her own support. In every case, at least one parent must be alive at year-end. Investment income above an annual threshold is then taxed at the parent’s rate. A high school junior or college sophomore who sells given shares could owe tax at her parents’ capital gains rate.

Shares you hold until death generally get a new basis equal to their market value under 26 U.S.C. § 1014, which wipes out the gain for your heirs. Gifting the shares now gives up that reset. That is one of the trade-offs we covered in a free estate checklist on beneficiary forms, ownership, and the paperwork that decides whether money goes to family or lawyers. On the other hand, keeping gains off your own return can lower Medicare costs.

In 2026, Part B surcharges start above $109,000 of income for single taxpayers and $218,000 for joint taxpayers. A gain you never realize never counts toward those limits. Before your granddaughter sells, compare her expected income with the 0% ceiling and check whether the kiddie tax applies to her.

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