Cost basis with no records?

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WilliamB
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Joined: Sun May 17, 2009 4:16 pm

Cost basis with no records?

Post by WilliamB »

Hi folks,

I did a quick search and found some information, but thought I might get more useful answers if I explained my situation.

I'm wanting to simplify and I have an old online broker account with 3 taxable stocks. I bought these when I was new to investing and had no idea what I was doing. I purchased two around Oct. 1999 and those two crashed hard and have never really recovered. A few years later I purchased another and that one has done really well. Today I have very close to what I initially invested and would like to sell all three and move the money to my Roth and to low cost diversified funds. And I'm guessing that the taxes will be close to a wash since I lost as much on the two as I gained on the third stock.

The problem is that I have no record and the online broker has no record of the date I bought the first two stocks or the cost. I only have a rough idea because I know how much I spent and about when I bought them and can back-calculate. All I can see is that you make your best estimate when you have no record. Is that really going to be acceptable?

We're talking about $3000 total current value of all three stocks.

Thanks!
Gill
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Re: Cost basis with no records?

Post by Gill »

WilliamB wrote:I only have a rough idea because I know how much I spent and about when I bought them and can back-calculate. All I can see is that you make your best estimate when you have no record. Is that really going to be acceptable?

We're talking about $3000 total current value of all three stocks.
With $3,000 total value and some rough idea of your original investment, go with it and you should have no problem.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
2 bits
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Re: Cost basis with no records?

Post by 2 bits »

I have been thinking about this some as well. This year, in an effort to streamline my number of accounts and to take advantage of a merger/ buyout price run up, I sold one of my few remaining individual stocks.
This stock was split off from one of three or 4 mergers over the decades. Originally I had bought $300 worth of my father's company stock with paper route money. That would have been in the mid '70s. Now I am a pack rat for many things including financial documents but to apportion the cost basis over all those years of DRIP plans in 2 or 3 split off stocks will not be done with much accuracy. So there will be an element of SWAG to the whole cost basis thing. That and I am hiding behind my efforts to increase income deferral, 403 (b) , 457 to stay in the 15% / 0% capital gains bracket. With any luck if anybody at the IRS ever sees the line item they will realize it just doesn't matter. The sale was only about $8k but I was glad to move the money to the index fund.

I still remember the trip to the broker's office as a young teen. My father was a child of the depression and one of the lessons he wanted me to learn was not to put any more in to the stock market than I could afford to lose. Sobering thoughts. Now I try to keep my risk level and AA at the point where I won't have to flinch if the market drops 50% for a few years. Stay the course.

Not sure if any of this helps the OP but at least you know there are others out there that might be off a bit on cost basis and gains calculations.
I sometimes think that I am living the life of which my immigrant ancestors dreamed.
JW-Retired
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Re: Cost basis with no records?

Post by JW-Retired »

WilliamB wrote: The problem is that I have no record and the online broker has no record of the date I bought the first two stocks or the cost. I only have a rough idea because I know how much I spent and about when I bought them and can back-calculate. All I can see is that you make your best estimate when you have no record. Is that really going to be acceptable?

We're talking about $3000 total current value of all three stocks.
Since you know "how much I spent", if you sell all 3 three positions that's your cost basis isn't it? You may need to apportion it between the three stocks based on estimates from historical prices, but the total ought to be right. Not the IRS, but seems to me such a best estimate would be OK.

Caution, this is just my simple minded opinion. We kept our annual broker statements so I've never had to make such estimates.
JW
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Toons
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Re: Cost basis with no records?

Post by Toons »

Two rules of thought ,,
1.If you don't know use zero as your cost basis
2,Try to determine a date range. If you can narrow the purchase date down to a number of weeks or months, use those dates to find prices that you can average. Make sure you keep a record of your calculation in case the IRS wants to know how you came up with the cost basis.

I would choose 2 :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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DonCamillo
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Re: Cost basis with no records?

Post by DonCamillo »

If you used a DRIP, the company that you invested in should have a record of your additional investments, and the date that you registered for the plan. If you know the year that you bought the stock, you can find the high and low value for the year. Even better if you know the month. You should be safe to estimate your cost at the low value, and (since it is a small amount) probably could get away with the average.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)
Gill
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Re: Cost basis with no records?

Post by Gill »

Toons wrote:1.If you don't know use zero as your cost basis
Now why would any taxpayer do that? I realize the IRS will assume a zero basis until you prove otherwise, but why give them all the advantage when neither you nor the IRS knows the basis. Take a WAG at a reasonable basis and you can be confident it will fly. I've been involved with tax returns my entire life and never once saw the IRS question basis, let alone on such a small transaction as being discussed here.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
dolphinsaremammals
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Re: Cost basis with no records?

Post by dolphinsaremammals »

You know about what you spent on the first two, and you know about when you bought them. Historical stock prices are online in various places. Crunch numbers and make a reasonable estimate. Keep a record of this in case the IRS asks.
bhsince87
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Re: Cost basis with no records?

Post by bhsince87 »

Another option might be to donate them to charity. In that case, the basis doesn't really matter. You don't need to do it all in one year.

I'm considering doing this with some ESOP stocks from a previous employer that has since split into 7 different companies and has 20+ years of drips.
Time is what we want most, but what we use worst. William Penn
inbox788
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Re: Cost basis with no records?

Post by inbox788 »

While brokers may not have detail transaction and accounting data for old accounts, sometimes, they keep account records that cover times your account was open/closed. Get something to document the dates the account was open to help avoid the $0 basis worst case.

FWIW, I had some missing cost basis, and I disposed it by donating the stock, taking the full deduction at present value and ignoring the lack of cost basis.

http://www.fidelitycharitable.org/givin ... ties.shtml
stan1
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Re: Cost basis with no records?

Post by stan1 »

Make your best effort, document, and don't make assumptions that are obviously in your favor. There is no need to assume the cost basis is zero. The brokerage may have the information you need even if you've closed the account (we are talking about 1999 --- not 1959). The company's investor relations website may have information on share prices and dividends/splits.

If you can't get the specific purchase date but you know you bought the stock in Oct 1999 don't use the high price for that month to determine the basis, use the median, average, or even the lowest price. Use the same methodology for the winners and the losers (e.g. don't try to maximize the loss on the losers and minimize the gain on the winner). Use an approach that a neutral third party would agree is fair or even (slightly) favors the IRS.

You need a $5,000 minimum contribution to open a donor advised fund at Fidelity or Schwab so although a good suggestion it might not work in this case.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
2cents2
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Re: Cost basis with no records?

Post by 2cents2 »

stan1 wrote:
You need a $5,000 minimum contribution to open a donor advised fund at Fidelity or Schwab so although a good suggestion it might not work in this case.
Do you have to use a donor advised fund?
fposte
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Re: Cost basis with no records?

Post by fposte »

2cents2 wrote:
stan1 wrote:
You need a $5,000 minimum contribution to open a donor advised fund at Fidelity or Schwab so although a good suggestion it might not work in this case.
Do you have to use a donor advised fund?
No, you can just gift the shares directly. The recipient has to be able to receive stock shares, though, and some small places--your local library or school, for instance--may not be able to do that.
Topic Author
WilliamB
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Joined: Sun May 17, 2009 4:16 pm

Re: Cost basis with no records?

Post by WilliamB »

Thanks for all of the thoughtful replies. I was surprised that the online trading firm didn't have records, but then I should have known to save a record too.

One thing that makes it tricky is that I bought those first two stocks with a few months of the crash so I bought very high and they have never recovered.

I did think about donating to charity, though for my income and net worth, that would be a large gift. But if I could move it to a donor advised fund and give the money away over time, that might be an option. I'll need to look into that more.

Again, thanks for the input.
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