I want to give my grandson $50,000 in appreciated stock to help him out with college costs. Could my gift end up leaving him with a tax bill?

Say, for example, that Ellen has $50,000 in appreciated stock that she paid $25,000 for years ago. She wants to give the money to her grandson to help pay for college, but she’s worried that her gift could end up sticking him with a big tax bill, as she has $25,000 in unrealized gains.

What are Ellen’s options in this situation to help her grandson without the IRS taking a big cut?

Grandma could sell the stock and pay the tuition directly

One of the easiest ways for Ellen to help her grandson avoid a tax bill would be to just sell the stock herself.

“If the genuine goal is to help a grandchild pay for college and not burden them with the tax bill, the cleanest solution is to gross up the proceeds so they can cover the expected tax on the sale,” Brando Reyna, CFA and founder of Reyna Capital Advisors, told Moneywise.

If Ellen takes this approach, the taxes may not be as big of an issue as she thinks. “Long-term capital gains tax starts at a year and a day. Less than that, the grandmother will pay ordinary income tax,” explained Aaron Ulrich, owner of Integra Financial Planning, LLC to Moneywise.

Ellen has owned the stock for a long time and capital gains are taxed at a lower rate than ordinary income, although, as Ulrich explained, they’re progressive based on income. “Her income and tax filing status are important variables,” he says.

Ellen is single, and in 2026, single tax filers with taxable income up to $49,450 pay a capital gains tax rate of 0%, while a 15% rate applies to single filers with $49,451 to $545,500 in taxable income. The capital gains rate hits 20% for income above that level.

“A simple way to reduce tax exposure is to break up the sale of the stock over two calendar years,” advised Ulrich. “Because long-term capital gains are tied to income levels, selling half now and half next year could potentially bring the level of gain to a lower exposure.” However, Ulrich acknowledged that waiting carries risk if the stock goes down.

Ellen could just opt to sell today, because, as Reyna pointed out, the cost would still be very low. Even if 15% was charged on the full $25,000 in profit, the federal tax bill would be just $3,750. And once she sells, if she pays his tuition directly, this isn’t considered a taxable gift, so there are no further obligations to the IRS.

Grandma could transfer the stock shares to her grandson

Ellen also has another option: Transferring the stock.

“The grandmother should transfer the shares into a custodial UTMA account in the grandson’s name,” John Gillet, CEO and founder of Gillet Agency in Hollywood, FL told Moneywise. “When the grandson sells the shares to pay for college, the capital gains are taxed at his capital gains tax rate. At that point, the grandson will be a college student with likely little to no income, so his capital gains tax rate at that time could be 0%.”

The risk of this approach is that the kiddie tax might apply if her grandson is under 18, if his earned income doesn’t exceed 50% of his financial support, or if he’s a full-time student between ages 19 and 23. This means a good portion of the gains would be taxed at his parents’ capital gains tax rate.