Many successful individuals, often those who’ve risen from humble beginnings, find themselves in a high tax bracket while their parents remain in lower income brackets. They feel a strong desire to provide financial assistance to their parents. This article outlines a strategic approach to help family members financially while simultaneously optimizing tax outcomes.

Understanding the Tax Advantage

For high-income earners, long-term capital gains are typically taxed at 20%, with an additional 3.8% net investment income tax (NIIT) on those gains. However, a significant tax advantage exists for individuals with lower taxable incomes. If your parents’ taxable income is below $98,000 annually (in 2025), their long-term capital gains tax rate is 0%. Furthermore, if their Modified Adjusted Gross Income (MAGI) is less than $250,000—a threshold easily met if they qualify for the 0% capital gains rate—they are also exempt from the net investment income tax.

The Strategy: Gifting Appreciated Stocks

Instead of directly gifting cash, consider gifting highly appreciated stocks. Let’s illustrate with an example: A client gifts their father and mother $19,000 each in 2025, for a total of $38,000 worth of stocks that originally cost them $8,000 (their basis).

Quantifying the Tax Savings

By employing this strategy, the client avoids the 23.8% taxation (20% capital gains + 3.8% NIIT) on their gains. In this specific example, the tax savings amount to $7,140. This is a substantial saving, especially if this gifting strategy is implemented annually for the duration of the parents’ lives.

The Gift Tax Exclusion Limit

The $19,000 figure is chosen strategically because it aligns with the annual gift tax exclusion limit. Gifting an amount at or below this limit per individual avoids the requirement to file a gift tax return, simplifying the process for both parties.

Applicability to Children

This same strategy can be effectively applied by individuals who do not need to support their parents but instead wish to provide financial assistance to young, independent adult children who still require financial support.

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