Let’s assume you sell the stock after it declines further to $10 per share. For example, let’s assume that your parent bought the stock for $20 but gifted it to you when it was only worth $15 per share. If you later sell the gifted stock for $15, you could realize a $5 loss.Īlternatively, If the fair market value of the asset at the time of the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the asset.
Sell the stock for $35 and you may realize a gain of $15 per share. If they had purchased the stock for $20 and gifted it to you when it is worth $30, your basis would be $20 per share and your holding period would be based upon when your parent originally purchased the shares. For example, lets assume you received a gift of stock from a parent. If the fair market value at the time the donor made the gift is equal to or greater than the donor's adjusted basis before the gift, your cost basis is the donor's adjusted basis at the time you received the gift. According to the IRS, to figure out the basis of property you receive as a gift, you must know three amounts: The adjusted cost basis to the donor just before the donor made the gift to you, the fair market value (FMV) at the time the donor made the gift and the amount of any gift tax paid on Form 709 if applicable. Generally, valuing gifted stock for tax purposes is based upon the donor’s cost basis and holding period.
For example, if you were the recipient of gifted shares, the cost basis will need to be traced back to the original donor. Gifted sharesĪlternatively, if you were not the originally purchaser of the shares, as is the case if share were gifted or inherited, you may need to follow a different approach. While they may have to access their own archives, it may be possible to locate the information you are looking for by tracing the purchase back to the original firm the security was purchased through. A great place to start is usually with the last known investment firm or transfer agent. So, what exactly should a taxpayer do when they are missing cost basis information? First, it’s important to understand that cost basis reconnaissance can be a time-consuming process, which is why it may be a good idea to get started on the process well in advance of the tax filing deadline. We recommend taxpayers hold onto trade confirmations and also keep track of reinvested stock dividends.” According to Christine Darcy, CPA at Darcy & Connolly CPAs in Spring Lake Heights, NJ, “Taxpayers should keep in mind that the IRS expects you to keep and maintain records that identify the cost basis of your securities. Despite this rule, it is often inevitable that an investor either sells securities that were purchased prior to 2011 or sells shares acquired through other means that are missing cost basis information.ĭespite the fact that it is not necessarily uncommon for some taxpayers to be missing cost basis information, it is important to remember that it is ultimately your responsibility to keep careful records. That’s because in 2011, a new rule required investment custodians or brokers to report the adjusted cost basis and whether any gain or loss on a sale is classified as short-term or long-term from the sale of "covered securities" on Form 1099-B, thus easing the burden placed on investors. From tax loss harvesting to rebalancing and profit taking after the prolonged market rally, the record keeping associated with the execution of taxable transactions in non-retirement accounts is usually pretty simple. As 2017 came to a close, many investors made last minute choices regarding the sale and purchase of various securities.