Someone gives me stock valued at $10,000 at the time of the gift, but it cost the giver only $5,000 when he/she purchased it. My income is so low I do not normally file income tax returns. When I do eventually sell the stock, is my cost basis the original $5,000, or the $10,000 value of the stock when I receive the gift? It is a gift, not an inheritance.
$5000.
Ira Smilovitz
Gift: Basis of gift from donor + gift tax allocated (on Form 709). Inheritance: FMV (or amount on Form 706 if filed).
OK, if the original cost is what should be reported to the IRS when the stock is sold, how does the recipient know what the original cost was if he/she is not told the original cost when he/she receives the stock??
wrote:
it cost the giver only $5,000 when he/she purchased it. My income is so low I do not normally file income tax returns. When I do eventually sell the stock, is my cost basis the original $5,000, or the $10,000 value of the stock when I receive the gift? It is a gift, not an inheritance.
How? By inquiring after the stock is received, if such inquiry was not made prior or at time of the gift.
It is the taxpayer's responsibility, under US income tax system, to track the basis of any property that is disposed with a taxable gain or loss. So, the donor should have the information available. In the last few years, brokerages have been required to report basis data on 1099-B form, but only going forward, not for historical transactions.
A de facto safe harbor is to use zero as the basis. If your income is so low that you don't normally file tax returns, the long term capital gains tax rate will be zero anyway (unfortunately, not so for all states).
If you know or can learn the date of giver's acquisition, there are sites online that will give you historical prices.
Question for all: Is it possible to contact the company or transfer agent and learn the date?
If you have a physical certificate, perhaps. If the shares are held at a broker, not a chance.
Ira Smilovitz
These days the vast majority of stock is held in street name at a broker, so the company and transfer agent have only a rough idea of who the beneficial owners are. So even before the privacy issues of whether they'd be willing to tell you, they probably don't know.
In my limited experience, if you make a reasonable attempt to figure out the basis, the IRS is unlikely to challenge it.
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