diff --git a/src/backend/InvenTree/stock/models.py b/src/backend/InvenTree/stock/models.py
index 27456d88fe..09ad9fb381 100644
--- a/src/backend/InvenTree/stock/models.py
+++ b/src/backend/InvenTree/stock/models.py
@@ -3,6 +3,7 @@
 from __future__ import annotations
 
 import contextvars
+import copy
 import os
 from contextlib import contextmanager
 from datetime import timedelta
@@ -2671,8 +2672,14 @@ class StockItem(
 
         return True
 
-    def find_merge_target(self, location):
-        """Find an existing stock item at location that can absorb this item."""
+    def find_merge_target(self, location, status=None):
+        """Find an existing stock item at location that can absorb this item.
+
+        Arguments:
+            location: The destination StockLocation
+            status: Optional status which will be applied to this item as part of the move.
+                If provided, the merge target must match this status (rather than the current status)
+        """
         if location is None:
             return None
 
@@ -2681,6 +2688,15 @@ class StockItem(
         if not self.can_merge():
             return None
 
+        # Compare candidates against the status this item will have *after* the move
+        incoming = self
+
+        if status and not self.compare_status(status):
+            incoming = copy.copy(self)
+
+            if not incoming.set_status(status):
+                return None
+
         candidates = list(
             StockItem.objects
             .filter(part=self.part, location=location)
@@ -2700,7 +2716,7 @@ class StockItem(
             search_order = candidates
 
         for target in search_order:
-            if target.can_merge(other=self, raise_error=False):
+            if target.can_merge(other=incoming, raise_error=False):
                 return target
 
         return None
diff --git a/src/backend/InvenTree/stock/serializers.py b/src/backend/InvenTree/stock/serializers.py
index 499b3bd713..0eabb08dd6 100644
--- a/src/backend/InvenTree/stock/serializers.py
+++ b/src/backend/InvenTree/stock/serializers.py
@@ -2219,7 +2219,9 @@ class StockTransferSerializer(StockAdjustmentSerializer):
                         kwargs[field_name] = field_value
 
                 if merge:
-                    target = stock_item.find_merge_target(location)
+                    target = stock_item.find_merge_target(
+                        location, status=kwargs.get('status')
+                    )
 
                     if target:
                         merge_kwargs = {
@@ -2258,6 +2260,11 @@ class StockTransferSerializer(StockAdjustmentSerializer):
                                 if field_name in kwargs:
                                     transfer_deltas[field_name] = kwargs[field_name]
 
+                            # Apply the new status (in memory only, as the item is about to be merged)
+                            # so that the merge checks compare against the requested status
+                            if status := kwargs.get('status'):
+                                stock_item.set_status(status)
+
                             merge_kwargs['transfer_deltas'] = transfer_deltas
                             target.merge_stock_items([stock_item], **merge_kwargs)
 
diff --git a/src/backend/InvenTree/stock/test_api.py b/src/backend/InvenTree/stock/test_api.py
index 49e2820c9f..a3ae6bfd7e 100644
--- a/src/backend/InvenTree/stock/test_api.py
+++ b/src/backend/InvenTree/stock/test_api.py
@@ -3610,6 +3610,78 @@ class StockTransferMergeTest(StockAPITestCase):
         existing.refresh_from_db()
         self.assertEqual(existing.quantity, 100)
 
+    def test_transfer_merge_with_status_change(self):
+        """Merge-on-transfer must match against the *requested* status.
+
+        Regression test for https://github.com/inventree/InvenTree/issues/13086
+        The merge target used to be selected using the current status of the item,
+        so a full transfer with a new status was merged into stock with the old status.
+        """
+        damaged = StockStatus.DAMAGED.value
+
+        # Full quantity transfer, with no matching target at the destination
+        existing = StockItem.objects.create(
+            part=self.part, location=self.dest, quantity=10
+        )
+        incoming = StockItem.objects.create(
+            part=self.part, location=self.source_loc, quantity=5
+        )
+
+        self.post(
+            self.url,
+            {
+                'items': [
+                    {'pk': incoming.pk, 'quantity': 5, 'status': damaged, 'merge': True}
+                ],
+                'location': self.dest.pk,
+            },
+            expected_code=201,
+        )
+
+        existing.refresh_from_db()
+        self.assertEqual(existing.quantity, 10)
+        self.assertEqual(existing.status, StockStatus.OK.value)
+
+        incoming.refresh_from_db()
+        self.assertEqual(incoming.location, self.dest)
+        self.assertEqual(incoming.quantity, 5)
+        self.assertEqual(incoming.status, damaged)
+
+        # Subsequent damaged stock should merge into the damaged item (not the OK item)
+        # Check both a full quantity (3 of 3) and a partial (2 of 5) transfer
+        for quantity, available in [(3, 3), (2, 5)]:
+            source = StockItem.objects.create(
+                part=self.part, location=self.source_loc, quantity=available
+            )
+
+            self.post(
+                self.url,
+                {
+                    'items': [
+                        {
+                            'pk': source.pk,
+                            'quantity': quantity,
+                            'status': damaged,
+                            'merge': True,
+                        }
+                    ],
+                    'location': self.dest.pk,
+                },
+                expected_code=201,
+            )
+
+        existing.refresh_from_db()
+        self.assertEqual(existing.quantity, 10)
+        self.assertEqual(existing.status, StockStatus.OK.value)
+
+        incoming.refresh_from_db()
+        self.assertEqual(incoming.quantity, 10)
+        self.assertEqual(incoming.status, damaged)
+
+        self.assertEqual(
+            StockItem.objects.filter(part=self.part, location=self.dest).count(), 2
+        )
+
 
 class StockItemDeletionTest(StockAPITestCase):
     """Tests for stock item deletion via the API."""