How do you figure the cost basis of a stock if you don't have the purchase information?

My parents have a brokerage account they’ve had for decades, and the brokerage firm name has changed as firms consolidate etc.

We want to sell some stocks and my parents have no idea what the cost basis is. We called the firm and they can’t figure it out either. Someone must know, right???

Someone who is an expert in securities can perhaps quote the exact rules about the record-keeping requirements for brokers and corporations, but as a tax guy I can tell you that it is very common to be told that records simply do not exist anywhere.

From a tax perspective, it was always the responsibility of your parents to track basis information and they can’t use reliance on a third party as a defense (not much anyway).

They can use an estimated cost basis for filing if they have any idea when they bought. Estimates may or may not survive an audit, but they are kind of up a creek on this one.

If they hold it until they die, the estate/heirs will get to claim the basis at the date of death. I know, I’m a world of help, right? :slight_smile:

The IRS has a hotline to answer questions like that.

If you know the approximate date the shares were purchased, you can look up the price on that particular date, to estimate your cost basis.

That gets complicated very quickly with mergers, acquisitions, and share splits. There are stock research services that can figure this stuff out, though.

It’s not that complicated. All of the info. is online.

It gets especially complicated if you’ve been reinvesting dividends. I bought $2,000 dollars worth of GE stock in 1988 and have reinvested the dividends ever since. It also split 2:1 once, maybe twice, and 3:1 once. It’s currently worth better than $33,000, but all of the dividends reinvested go to my cost basis. I’ve already paid the tax on those dividends and don’t want to have to pay capital gains on them. My plan is to die without selling the shares and let my heirs figure it out. It’s not a smart plan, but it’s one I think I can follow through on.

No, seriously, these guyscan do it for you.

No, no, no Sir, you are selling yourself far too short.
If you have denied yourself pecuniary benefits of the investment for a quarter of a century then the very least the heirs can be expected to do to determine exactly how much they have benefited from your legacy.

Not necessarily. It depends how far back you need to go, and whether you need to take a cost-basis average of additional purchases (e.g. a dividend reinvestment.)

Do your parents ever give any money to charity? To their church, to public TV, to the animal shelter, the Red Cross, etc?

Transfer the shares to the charity instead of making a cash donation. Don’t sell the shares first, just transfer the ownership of the shares.

The advantages of this are: you don’t have to pay tax on the gains, you can take a deduction for the current fair market value of the shares, and neither you nor the charity will need to know what the basis was. It won’t cost you anything (except possibly a fee to transfer the shares) since it will be replacing a cash donation you would have made anyway.

Note: This trick only works with long-term capital gains property, which is generally property you have owned for more than one year or that you have inherited.

Is there an accountant here? I’m just guessing that the purchase price is irrelevant since stocks are usually valued at market value and any sale will just take out a transfer tax.

I have faced this issue recently, and the answer is… either you get the records from the original brokerage, or your cost base is zero. Sorry. I found it painful too.

No, that’s making it too easy on them. When you die, your heirs get the step up (or step down) in basis. That means all they have to do is look up the value of the shares on the day you died.

What you want to do is gift them the shares on your death bed. Then they will need to go back and figure out what the heck your basis was.

I’m not sure what you mean by transfer tax. You have to know the cost basis in order to calculate your capital gain (or loss) to pay capital gains tax.

[not worthy]
All the advantages listed plus the evil genius.
[/not worthy]

How can that be the case? AIUI, if the shares were purchased through a brokerage the parents never actually held full title but were merely the beneficial owners.

Doesn’t matter. As far as taxes are concerned, the parents own the stock.

It is only in the last 10 years or so that brokerages keep track of your cost basis for you. (They are required to now.) It used to be everyone had to keep track themselves, including making adjustments for splits and spinoffs and mergers and special distributions/return of capital.

Now the basis for all your sales is reported to you on your 1099 every year…except in cases where the brokerage just doesn’t have the information, like the OP’s situation.

::Points to the first response.::

Of course, if you’re thinking transfer tax, you’re probably not thinking US taxes, which is what I assume the OP is talking about.

Ah, thank you.