As college costs increase, students have been forced to take on a growing amount of debt. In fact, 47% of student borrowers with a bachelor's degree (1) owe more than $25,000 — and the average student loan balance among households with student debt is $52,138.

Getting family help covering the cost of a degree can reduce or even eliminate borrowing. But there are some things to think about, including how a financial gift can impact tax bills.

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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 (2), 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 (3), 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 (4)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.