What is the cost basis for stocks given as a gift.?

Question

My parents gave a gift of stock in 1995. In 2005 I sold it and closed the brokerage account. I was under the impression that the cost basis was the market value at the time of the gift. The stock depreciated slightly from 1995 to 2005 so I didn't report capital gains to the IRS. I got a notice from IRS the other day saying that I owe taxes based on the cost basis that the brokerage reported. (based on the original purchase by my parents in 1989)

Answer 1

The stock's price when you sold it was higher than the price when your parents purchased it. If dividends were reinvested, this makes it a bit more complicated than has been detailed in the other answers.

Your basis in the stock is the original purchase price, plus the value of any reinvested dividends while either you or your parents owned the stock.

You need to reconstruct this basis yourself. Go to yahoo finance and look up the stock and the historical prices. Or ask your parents if they have any records.

If you can't reconstruct the basis, then you'll have to go with the numbers provided by the IRS and pay capital gains tax on the gain, which is the same as the gain your parents would have reported, minus any of your re-invested dividends in this stock.

I am assuming this is not so large a gift that gift tax was paid, so that is not added to the basis of the stock.

Answer 2

Your basis for stock gifted while the donor is alive begins with the donor's adjusted basis. If the fair market value of the stock on the date of the gift was greater than the donor's basis and the donor paid a gift tax (they would have filed Form 709) on the transfer you can add the portion of the gift tax attributable to the appreciation to the donor's basis.

If the value on the date of gift was less than the donor's basis you have a split basis in the stock. It is easiest to do this by example. Assume your parents bought the stock for $10 and it was worth $6 on the date they gave it to you. If you sell the stock for more than $10 you use $10 as your basis to measure the gain. If you sell the stock for less than $6 you use $6 as your basis to measure the loss. If you sell for any price between $6 and $10 there is no gain or loss.

Go to the IRS web site and download publications 544 (Sales and Other Dispositions of Assets) and publication 550 (Investment Income and Expenses).

I agree with the advice of others, do not accept the basis from the brokerage house unless they can show you a confirmation for the purchase.

Answer 3

Sorry, you are wrong. The cost basis was the price paid in 1989 by our parents.

You can get a stock price history from the company. Let an accountant figure out the loss or gain. Either way you must report the sale of the stock, which is why the IRS sent you a letter. File an amended tax form and correct your error.

Respond in writing to the IRS asap.

Answer 4

Your impression was wrong. If the stock had been inherited, that would be correct. But stock received as a gift keeps the giver's basis, so your basis would be whatever your parents' basis was.

Since the brokerage had records of their purchase, your task becomes simple, but the IRS is correct on what you owe.

Answer 5

The cost basis, on stock you receive as a gift, is the donors basis.
Do not rely on the cost basis provided by the broker. It is very often incorrect.

Answer 6

You are confusing "Gifts" with "Inheritances".

Stocks that are inherited are valued as of the date of death.

Stocks that gifts keep the same basis as the giver. The basis is whatever they paid for it in 1989.

Answer 7

you are able to would desire to locate out what the guy who gave it to you had for his or her foundation - which will become your foundation. in case you are able to no longer verify that, then your foundation could be 0. uncertain what you propose approximately no federal tax being utilized to the sale. in case you're utilising some sort of tax utility and this is no longer showing tax, you have entered something incorrect. there's a glitch interior the tax regulation that should assist you escape tax in 2008 in the adventure that your earnings is low adequate, yet no longer in 2007.

Answer 8

I assume they did not die, so you owe from 1989 if they did not pay on the period from 1989 to 1995 when you got it.

Answer 9

There is cost basis for your books and cost basis for taxes.

Since you mentioned the IRS, I would suppose you want tax cost basis.

I suggest you contact a professional as there may be other data involved for you to get an appropriate answer.

Questions such as what was the value of the stock when they gave it to you?

How old were you when they gave it to you?

Have you sold it?

Are you still a dependent of theirs?

etc.

Make sure you ask someone who is competent in taxes pertaining to this sort of thing, not just any tax preparer will do.