Years ago, my father set up a custodial account as part of my college fund. It was a late bit of diversifying that wound up being forgotten. I’m not sure of the inception date or original investment; the oldest documentation I can get says 2006 with a different fund name. Anyway, back in 2010 the account was re-discovered and a whole new account (different account number and everything) was set up as a non-custodial, non-retirement account. Anyway, I’m finally going to need the money this year. Is my cost basis the original amount invested at the inception date in 2006 or the amount transferred to the new account when the custodial account was terminated?
The answer is probably a lot messier than the two options you’ve listed.
Cost basis is the cost to originally acquire stock. Assuming that your father transferred cash into the account in 2006 and then bought the stock there, that would be the starting point for the cost basis. If he put a little money in every month/year, then the cost basis for each lot of stock would be different.
In addition, dividends are often reinvested by buying fractional shares of a stock or fund, If so there’d a different cost basis for these additional shares.
Anyway, the process of transferring stock from one account to another does not, by itself, affect the basis of the stock. I clarify “by itself” because sometimes people sell stock in the old account, transfer cash and then buy stock in the new account. That’s not the same thing as transferring stock directly.
dracoi nailed it in one. I’ll just add that if you cannot determine the cost basis precisely, you may be able to estimate in good faith a cost basis that the IRS will accept. It would help to know things like when your father first contributed and how much money he put in and the amount of any periodic contributions. From there, you would add in the amount of dividends or capital gains that were reinvested into new shares. Your accountant may be able to help you with this. If you have good records for at least some of the time period, you can do this a lot more accurately.
So my cost basis definitely goes back to when the account started and not when it transferred to my control? All right, that’s what I was trying to find out. I’ll see what I can find regarding paperwork, but I don’t think the total long-term capital gains is more than a couple hundred dollars. Maybe I can take the oldest statement, adjust using the since inception gain/loss percentage, and call it close enough.
Also, I think the only additions would have been dividends, as money was generally going out of accounts by then, not going in. That I’ll have going back until 2008 with the available statements online. I didn’t even get 1099-DIV most years as the total was less than $10.
Yes.
I don’t know what your statements look but I don’t think this will work. The gain or loss percent that is on the statement each year is probably the total return for the fund (or for your account). This would mean it reflects the total of dividends, distributed capital gains, and unrealized gains. Unfortunately, only the first two might affect your basis, and that is only if the amount of dividends and distributed capital gains were reinvested in more shares.
I thought you said that this account was forgotten? I assumed that meant that you weren’t getting money out at all. The withdrawals will either greatly simplify your basis calculation or greatly complicate it.
You could either get money by taking the cash from dividends and capital gains distributions or by selling previously acquired shares.
If the cash from the account was just the distribution of dividends and realized capital gains from the funds (that is, if these distributions were paid to you in cash rather than reinvested in more shares), then those amounts should have been treated as income in the year they were received. They wouldn’t add to the basis of the remaining shares. So this simplifies the calculation. You don’t have to add the distribution of the capital gains and dividends to your basis. The basis in the remaining shares is what your father paid for them.
If you were actually selling shares over time and withdrawing the proceeds, this will greatly complicate the basis calculation. Every time you sold shares, you realized a gain or loss and you reduced the basis in the investment by the amount of the basis attributable to those shares. So to do this precisely, you’d need to know the basis attributable to each lot of shares at the time you sold them. This may depend on the accounting method you used at the time of sale (specific lot or first-in first-out). To determine the basis of the shares remaining, you would start with the cash basis of all the shares and subtract the amount of the basis attributable to all the lots of shares already sold.
If you were both reinvesting dividends and capital gains distributions and also selling shares, your basis calculation will be a nightmare.
If you want easy, somewhat safe, methods to estimate basis, consider using the lowest cost per share of the fund over whatever time period your father invested for all the shares (best if you can establish the time period over which he invested); the lowest price in your lifetime (if you can establish that he invested only during your lifetime); or the lowest price per share ever for that security. If he started investing in some newfangled funds in the late 1990s near the fund’s inception date, this last estimate might not be so far off from the truth anyway. Also, if the funds had loads (sales commissions), you can also consider that part of the cost basis.
It depends on whether your father paid any capital gains tax on it before (or in the tax return just after) it was transferred to your control. If so, then it’s easy; the amount you got after the tax was paid is your cost basis. Otherwise, I think it’s back to when it started (though I don’t know anything at all about the tax implications of a custodial account).
Are these individual stocks? I’m used to accounts attached to mutual funds. A fund would have the information you need.
It’s a single fund. And not a particularly well-performing one, as it’s heavily exposed to Europe. (It’s only worth about $150 more than it was at the start of 2008.) I’ll see if Dad’s got the paperwork on his end. And yes, it’s possible Janus can get me the information when I sell. I figure de minimis would probably apply all things considered, as long as I make a reasonable assumption but I still like to do things right if possible.
I ran into a similar situation with stock purchased in the 80s. If it’s stayed with Janus the entire time, they may be able to help you out. I ended up having to reconstruct all the dividend reinvestments over 30 years based on how much was paid per share each time there was a dividend.