Adjust Strategies for Gift Giving in Light of the Revised Kiddie-Tax Rules
Focus on shifting income to grown children who qualify for tax-free capital gains.

The days of giving appreciated assets or income-producing property to young children and teens as a way to trim the family’s tax bill are history. But older children and other lower-income family members, such as elderly parents, who qualify for a temporary 0% capital-gains rate may benefit mightily from your gifts.
The kiddie tax, which taxes a child’s investment income above certain levels at a parent’s higher tax rate, now applies to children under 19 and to full-time students under 24. Previously, it disappeared when a child turned 18. (Children who provide more than half of their own support are not affected by the kiddie-tax change.)
For 2009, the first $950 of a child’s unearned income is tax-free and the next $950 is taxed at his or her own rate. But a youngster’s investment income in excess of $1,900 is taxed at the parents’ higher rate.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
While the latest kiddie-tax rules limit your ability to shift income to your younger children, your young adult children or other family members may benefit from another tax new rule that allows those in the two lowest income-tax brackets to claim long-term gains and qualified dividends tax-free for 2009, and for 2010 as well.
Say you own $10,000 worth of stock that you bought years ago for $5,000. And let’s say you plan to give $10,000 to your 25-year-old daughter before the end of the year to help buy her first home. (She’ll be off to a great start because she probably will also qualify for the new $8,000 tax credit for first-time home buyers). If you sell your stock, you’ll owe the 15% capital-gains rate on $5,000, costing you $750. But give that stock to your daughter to sell, and assuming she is in the 10% or 15% income-tax bracket, she’ll qualify for the 0% capital-gains rate. That means the $5,000 gain will be tax-free for her, saving your family $750.
When you give someone stock or other property, the recipient assumes your original cost basis and holding period. In 2009, you can gift up to $13,000 per recipient, or you and your spouse together can gift up to $26,000 per recipient, without filing a federal gift-tax form.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
The Most Popular Apps for Retirement Planning in 2025
A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)
State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
The Final Countdown for Retirees with Investment Income
Retirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?
Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
New Bill Would End Taxes on Social Security Benefits in 2026: What Retirees Should Know
Tax Law Congress could look to high earners to help offset lost revenue and possibly shore up the Social Security program.
-
IRS in Turmoil: GOP Budget Cuts and Staff Shake-Ups Threaten Taxpayer Services
IRS Republican lawmakers advance a controversial budget bill that would gut IRS funding further, risking your 2026 tax filing season.
-
Cruise Lines Sue to Block Hawaii’s New Climate Tourism Tax
State Tax Your vacation to the Aloha State could come at a higher price tag next year. Here’s why.
-
21 Last-Minute Gifts for Grandparents Day 2025 to Give Right Now
Holiday Tips Last-minute gifting is never easy. But here are some ideas to celebrate Grandparents Day.
-
New $6,000 'Senior Bonus' Deduction: What It Means for Taxpayers Age 65-Plus
Tax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.