How to Determine the Cost Basis of Gifted Stock
- Gift Tax Liability. Givers of a gift of stock need to determine the fair market value of the stock at the time the gift is given, not the cost basis.
- Income Tax Liability. The receiver, Candace, Anna’s granddaughter, in the example above, does not have to worry about gift tax liability.
- The Bottom Line. ...
Full Answer
What price is used when gifting stock?
Jan 07, 2020 · The simple answer to your question is no, the value of a gift of stock for gift tax liability is NOT the donor's cost basis, but rather the fair market value of the stock at the time the gift is given. So let's say you purchased 100 shares of XYZ stock at $50 a share. Your cost basis is $5,000. Now the stock is $80 a share and you give it as a gift.
What is the basis of stock given as a gift?
Jun 05, 2015 · If the stock has appreciated in value, the basis is the same as your grandmother’s original basis—which is usually the amount she paid for the stock plus any reinvested dividends (plus brokerage...
How do I determine the cost basis of stocks?
If you have been assuming that to be able to conduct the determination of liability regarding the gift tax, the value that is associated with a gift of stock is regarded as being gifted shares cost basis, this article will shed more light on the real situation regarding this type of issue.
What is the basis for stock received as gift?
Oct 25, 2018 · Answer: One of the downsides to giving appreciated stock is that your daughter’s basis when she sells the shares will be your original cost basis. So if you give your daughter securities that ...
Is the person who receives a gift of stock responsible for taxes?
The person who receives the gift is not responsible for any gift taxes when receiving the gift of stock. On the other side of the spectrum, it is noted that in such an instance, if the person chooses to sell the stock, then there is the issue of determining the valuation of the stock for the sake of income taxes. It is at this point that complexities can develop.
Can stock gifts cause tax issues?
It cannot be denied that stock gifts can cause the rising of many issues about taxation. This is because there are various methods for determining the value of the stock based on if the stock is for the sake of income tax or gift purposes.
What Is the Cost Basis?
At the most basic level, the cost basis of an asset or security is the total amount invested in it, plus any commissions involved in the purchase. This can either be described in terms of the dollar amount of the investment, or the effective per share price paid for the investment.
Cost Basis Example
Say you invested $10,000 in ABC Inc., which bought you 1,000 shares in the company. The cost basis of the investment is $10,000, but it is more often expressed in terms of a per-share basis, so for this investment, it would be $10 ($10,000/1,000). After a year has passed, the value of the stock has risen to $15 per share, and you decide to sell.
How Stock Splits Affect Cost Basis
If the company splits its shares, this will affect your cost basis per share, but not the actual value of the original investment or the current investment. Continuing with the above example, suppose the company issues a 2:1 stock split where one old share gets you two new shares. You can calculate your cost basis per share in two ways:
Selling Shares From Multiple Investments
However, if the company's share price has fallen to $5 and you want to invest another $10,000 (2,000 shares) at this discounted price, this will change the total cost basis of your investment in that company (and bring the total shares owned to 3,000).
Cost Basis of Gifted or Inherited Shares
In the event the shares were given to you as a gift, your cost basis is the cost basis of the original holder who gave you the gift. If the shares are trading at a lower price than when the shares were gifted, the lower rate is the cost basis.
Gifted shares
Alternatively, 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. For example, if you were the recipient of gifted shares, the cost basis will need to be traced back to the original donor.
Inherited shares
Despite all the changes in the new tax bill, the step-up in cost basis at death remains. When assets are inherited, the cost basis is stepped-up to the value on the date of death (or six months later if alternate valuation is used). For example, let’s assume that a parent leaves a stock to their child.
No records
So, what should be done if you are missing records? Darcy add, “In the absence of good records, we would suggest a taxpayer attempt to recreate the basis with historical data related to stock values at the time of original purchase and adjust for any increases or decreases to basis.
