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.

Sign up for Kiplinger’s Free E-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.

-
Aging: The Overlooked Risk Factor
Sponsored Elder care is a personal and financial vulnerability many people fail to plan for.
-
AI vs the Stock Market: How Did Alphabet, Nike and Industrial Stocks Perform in June?
AI is a new tool to help investors analyze data, but can it beat the stock market? Here's how a chatbot's stock picks fared in June.
-
2025 SALT Cap Could Hurt Top 'Hidden Home Cost'
Tax Deductions The latest GOP tax bill might make hidden homeowner costs worse for you. Here’s how.
-
No Social Security Tax Cuts in Trump’s 'Big Bill'? What Retirees Need to Know
Tax Policy Eliminating taxes on Social Security benefits is missing from President Trump’s proposed tax overhaul. Here’s why and what an alternative offering could mean for retirement taxes.
-
Retire in the Bahamas With These Three Tax Benefits
Retirement Taxes Retirement in the Bahamas may be worth considering for high-net-worth individuals who hate paying taxes on income and capital gains.
-
Five Surprising GOP Senate Bill Tax Changes to Know
Tax Policy Senate Republicans released proposed tax changes for Trump’s ‘one big, beautiful bill.” Some provisions are already stirring debate.
-
Senate Seeks $6,000 'Bonus' Tax Deduction for Those Age 65 and Older
Tax Reform Under Trump’s ‘big bill,’ the Senate Finance Committee has proposed a larger bonus tax deduction for older adults than the House. Will it pass?
-
2025 Virginia Tax Rebate Checks Coming Soon? What to Know Now
Tax Rebates Given a historic 2025 gubernatorial race, tax policy will remain a key issue for Virginians in the months ahead.
-
Don't Miss These Four Tax Breaks for Americans Living Abroad in 2025
International Tax U.S. expats can reduce their tax burden by taking advantage of a handful of tax credits and deductions.
-
Summer Backyard Ideas With Added Tax Benefits for 2025
Tax Tips Find out how these summer 2025 home projects can help you save on taxes next year.