calculating cost basis on inherited stocks given as a gift

December 30, 2008 6:22 AM

How do I calculate the cost basis for stocks that were inherited by my father, who later gave them to me?

My father inherited a great many of his father's stocks in the 1980s. In 1999, my father transferred a number of the stock certificates to my name, and gave them to me as a gift.

A few years after my father gave them to me, I sold some of the stocks. For the purpose of calculating my capital gains, is the cost basis the stock’s value at the time my father inherited them, or their value at the time my father gave them to me?

(All of this took place within the U.S., and I need to know the cost basis for use on a U.S. IRS form. I have a record of the market value [historical price] of these stocks both on the date my father inherited them and on the date they were transferred to me. I just need to know which value is relevant. Google shows me results for either inherited stocks or stocks given as gifts, but not for stocks which were inherited and then given as a gift.)

posted by Elsa to law & government (4 comments total)

You need to account for any corporate actions that would change the market value of the stock, such as a split or a takeover.

Investopedia is your friend
posted by teabag at 6:28 AM on December 30, 2008

The rule for inherited property is that the recipient's basis is the fair market value of the property at the time of inheritance. Your father's basis in the property is thus the value when he received it. See 26 U.S.C. 1014(a).

When your father passes it on to you, your basis is the same as his basis. See 26 U.S.C. 1015(a). The recipient's basis of a gift is the same as it was in the hands of the giver. As your father's basis was the value of the stock when he inherited it, your basis is the same. The historical price at the date they were transferred to you is irrelevant. All you need to know is historical price when they were transferred to your father.

This is why many elderly people wait until they die to transfer property to their children. If they make an inter vivos gift, the children have the same basis in the property as the parents do. If the property is passed on through inheritance or bequest, the children's basis is the fair market value at the time of the parents' death.
posted by valkyryn at 6:36 AM on December 30, 2008 [3 favorites has favorites]

This page says the same thing as what valkyryn described, as long as the fair market value of the stocks were above the original cost basis at the time that they were given to you.
posted by burnmp3s at 6:46 AM on December 30, 2008

Valkryrn & burnmp3s: thanks, those links answer my specific question very clearly! (I was afraid that was the answer. Ouch.)
posted by Elsa at 7:13 AM on December 30, 2008