Stock price basis

Try this:

Hi, Bill.

Start at the beginning: The date of death of the decedent from whom you inherited the stock.

That MIGHT be 1983 when you inherited the stock - or not. Assets "acquired from a decedent" are valued at date of death (with a few exceptions, which I will ignore for now but are very significant when they apply). The stock acquires a new basis ("basis for determining gain or loss, or for depreciation") equal to the Fair Market Value (FMV) on the Date of Death (DOD). This new basis becomes the "uniform basis" that persists through any changes of ownership until it actually reaches the heir. So, if it takes months or years to settle the estate, and then the stock goes into a trust for years (until death of the surviving spouse, for example), and finally to the heirs, the stock keeps its same basis through all those transitions.

So, if your decedent died in 1970 but you didn't get the shares until 1983, you still will need to know the 1970 value and the history since then. The executor (and trustee?) should be able to furnish this information. Was a Form 706, Estate Tax Return, filed for the estate; if so, that provides the starting point because it would have listed the stock at its DOD value.

Then, I'm sorry to say, the tedious work begins. Since the dividends were reinvested, you will need to know the date each dividend was paid, the amount of the dividend, and the number of full and/or partial shares acquired with each separate dividend. Each lot of shares will have its own basis and its own acquisition date. Just as with shares purchased with cash, the price per share is almost irrelevant; the number of shares and the total cost of each lot are what matter. The list at the URL Arnie supplied can be a big help in calculating the basis if you don't have records, but your actual dividends and reinvestments are what actually govern. Again, if the DOD was in 1970, that's when the historical record must begin, not necessarily on the later date when you actually received the shares.

When the stock is sold, in whole or in part, each lot must be reported separately. List them, line by line, and divide the short-term from long-term gains and losses on Schedule D of your own Form 1040. The inherited shares are clearly long-term, but if shares bought with a recent dividend are included, some of those will probably be classified as short term. You can, if you like, group them all into a couple of lines (LT and ST), but be sure to have the backup detailed listing in case the auditor asks for it.

If any shares were sold in prior years, you must identify WHICH shares were sold, or use the FIFO method, starting with the shares held by the decedent at DOD. If they were identified and reported incorrectly, you might need to file amended returns for any "open" years.

There is a break for inherited assets sold after the death that lets gain from them be treated as long-term even if they are sold within a few days, but for a death in 1983 (or before), that period is long expired; the DOD governs even if you didn't get the shares from the executor or trustee until recently.

Summary: Stock held by the decedent at date of death: DOD FMV and holding period. Shares received by reinvesting dividends since DOD, whether by you or by an intervening executor or trustee: Cost of shares purchased with each separate dividend, holding periods start on each dividend date.

Remember that I've been retired for nearly 20 years and these rules change often. The rules may not be as I remember them. Be sure to discuss this with your own CPA - and the executor's CPA if necessary - before filing your return, Bill.

RC

Thanks, Arnie. Unfortunately the data it provides doesn't go back to

RC comes through again! You confirmed that I'm going to have to put some elbow grease into it.

You might try this site provided you can come up with all the information: