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Tax Law (Questions About Taxes)/Establishing cost basis for old stock


QUESTION: My father has gifted me a substantial portion of his assets which includes stocks, some of which date back to the 1980s.  I am pulling my hair out trying to establish a cost basis for each.  My understanding is that I am not entitled to use a bumped-up cost basis since the assets were transferred from a living person rather than inherited upon death.  Can you please confirm this assumption?

For some of the gifted stocks, I do have photocopies of the original certificates which he says we're issued at the time of purchase.  I suppose I need to know what is an IRS-acceptable method for calculating cost basis in instances where either some or no documentation is available.  If I do have the stock certificate, then would I multiply number of shares times the adjusted cost per share for that date (found at Yahoo historical prices)?   Does an adjusted price mean that stock splits have been factored into the price?  I'd appreciate whatever guidance you can offer.  Thank you.

ANSWER: Fleurette,

Thanks for your question.

You are correct, your basis is the original purchase price your father paid for the stock.

If you know the date purchased, simply find the price on that date and use an average price for that date to get the per share amount.  Then multiply the number of shares by that price to get your total cost basis.

If you don't know when they were purchased use an average price for the time period in which they were purchased.

The adjusted price means that the the price is adjusted based on dividends reinvested and stock splits.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

Thank you so much.  The method for establishing cost basis which you outlined, is that acceptable to the IRS?  If yes, do I need to submit a form or written explanation to IRS for how I made the calculations?  Would like to avoid an audit! :).

Also, how do I figure out whether to use the actual price or adjusted price for establishing the cost basis?  I don't believe my father reinvested the dividends, but obviously the stock splits affected all shareholders.

I have about $13K in losses I am carrying forward from last tax year.  Is it correct that I'd need a minimum $3K gain so as not lose the full benefit of offsetting that sum?

Thank you and sorry it's so close to year-end, but my father just decided to do this; he said the real estate tax next year could wipe out a good chunk of the estate if stock left as inheritance, so he thought this might be better even though won't have the advantage of bumped up cost basis!


Yes, that is an acceptable method for the IRS.  You do not need to submit the details of your calculations, just the numbers on the tax form.  However, have them available should they ask.

Use the actual price for the original number of shares.  Then adjust it for any stock splits or stock dividends that were received during the period he or you held the stock.  The adjusted price on Yahoo assumes the stock was held for the entire time, so if the stock has been held continuously since that date, use the adjusted price but also the adjusted number of shares.

You can carry losses forward indefinitely, you don't lose the benefit of those losses.

The estate tax only applies when he has used up his exemption amount.  If he would be subject to estate taxes, he is likely subject to gift taxes.  The exemption amount is currently over $5,000,000.  It may or may not decline next year, depending on what Congress does.

Hope this helps.

John Stancil, CPA  

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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