Determining cost basis of inherited shares of stock

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Frisco Kid
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Determining cost basis of inherited shares of stock

Post by Frisco Kid » Wed Sep 11, 2019 7:45 am

Cost basis question, any information will be greatly appreciated......
My mother bought shares of CVX through her ESPP plan while employed there. When she passed away back in 1990 those shares were inherited jointly by myself and my father. He used the dividends for income during those years and no shares were sold. Upon his passing in 2013 I inherited the other half. Now retired am capital gain harvesting to provide income. My first question is how do I determine the cost basis of the shares? Second question is how is cost basis determined for shares acquired via a stock split? Computershare is the current plan administrator. Thanks in advance for your input.

jebmke
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Re: Determining cost basis of inherited shares of stock

Post by jebmke » Wed Sep 11, 2019 7:54 am

Normally the shares that are inherited shares would have a cost basis equal to the fair market value at the time you inherit them. Subsequent purchases (dividend reinvestment) would be valued at the market value at the time they were purchased with dividends.

The corporate investor relations web site should have proxy statements for any acquisitions/divestments with an explanation of the tax basis consequences of the transaction. Typically they publish factors to be used to adjust the original basis.
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RickBoglehead
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Re: Determining cost basis of inherited shares of stock

Post by RickBoglehead » Wed Sep 11, 2019 8:07 am

Right. The 1/2 you inherited in 1990 has a cost basis of the date of your mother's passing. When she passed, whatever number of shares he had at the market price (day of death, average of open and closing price for stocks, end of day price for mutual funds) is the basis. Every transaction since then is at whatever cost it happened at. If you did not track that, you need to work from that date forward and find every transaction. You may get lucky and find a worksheet on their site if acquisitions / divestments happened.

In a stock split, the cost splits as well. So if before split you had 2 shares with a total cost of $80 or $40 per share, and the stock splits in half, your resulting 4 shares have a cost of $20 each. The same $80 was spent to buy them.

For the 1/2 you inherited from your father, the cost basis is the date of his passing.
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kaneohe
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Re: Determining cost basis of inherited shares of stock

Post by kaneohe » Wed Sep 11, 2019 8:48 am

Frisco Kid wrote:
Wed Sep 11, 2019 7:45 am
.................
............................ When she passed away back in 1990 those shares were inherited jointly by myself and my father. ..........................
wondering if this means, the inherited shares were owned (titled) jointly or if you simply owned half and your father owned half?

delamer
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Re: Determining cost basis of inherited shares of stock

Post by delamer » Wed Sep 11, 2019 9:18 am

kaneohe wrote:
Wed Sep 11, 2019 8:48 am
Frisco Kid wrote:
Wed Sep 11, 2019 7:45 am
.................
............................ When she passed away back in 1990 those shares were inherited jointly by myself and my father. ..........................
wondering if this means, the inherited shares were owned (titled) jointly or if you simply owned half and your father owned half?
That was my question too, as these are different situations.

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dm200
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Re: Determining cost basis of inherited shares of stock

Post by dm200 » Wed Sep 11, 2019 9:27 am

A possible "easy" solution to this is to make a donation of the stock to a charity. A Donor Advised Fund is a "charity" and might be the easiest and simplest way of making such a donation. When you donate to a charity - the cost basis is not relevant.

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Re: Determining cost basis of inherited shares of stock

Post by 123 » Wed Sep 11, 2019 9:31 am

If you can't figure out the cost basis of the stock you can always use a cost basis of $0 and it will be acceptable to the IRS. Easy peasy.
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Frisco Kid
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Re: Determining cost basis of inherited shares of stock

Post by Frisco Kid » Wed Sep 11, 2019 10:03 am

OP here, thanks for everyone's input. Shares were owned jointly as of 10/1990 so cost basis is as of that date. Was able to get that information from Netbasis so question is answered. In retrospect had shares been left entirely to Dad in 1990 then to me in 2013 stepped up basis would have been significant. i can work around that by selling in multiple years although a higher cost basis would have given me additional options. No worries, all is good!

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Re: Determining cost basis of inherited shares of stock

Post by kaneohe » Wed Sep 11, 2019 1:06 pm

What I'm wondering is if you have 2 different cost basis for each half of the shares or 1 blended one for all the shares .
If a married couple owned the JTWROS shares, I believe the survivor has a stepup on half of the shares (generally) but in practice there is one
blended cost basis since the shares are not really owned separately. For not-married jt owners, is it the same or do you arbitrarily assign
half the shares to be one basis and the other half the other basis?

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Frisco Kid
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Re: Determining cost basis of inherited shares of stock

Post by Frisco Kid » Wed Sep 11, 2019 2:11 pm

Want to be sure I understand..... upon my mom's death in 1990 I inherited jointly with my dad 1/2 the shares at market price the day of her death and the other half of the shares at market price the day of my fathers death in 2013? That would be significant as the share price difference is roughly $117.00 per share and in fact would give me a cost basis ABOVE today's market price. Am I understanding this correctly?

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Re: Determining cost basis of inherited shares of stock

Post by not4me » Wed Sep 11, 2019 2:54 pm

Frisco Kid wrote:
Wed Sep 11, 2019 7:45 am
He used the dividends for income during those years and no shares were sold.
I'm assuming from this that not only were no shares sold, but there were none bought either. After your mother's death, there was no re-investment of dividends. I think it is also true that this company while this company may have bought others, it was never bought by another.

There are rules around applying the step-up in basis that you would need to adhere to.

That said, assume that using the step-up rules her total account was worth $150. Your cost basis would be $75 for half the shares. Then, assuming no shares bought or sold (splits won't affect this), applying the step-up rules for when your father died, the total was now $250. Your cost basis for all of it would be $75 + $125 = $200. If you use specific id when selling, you can determine a cost basis per share. Or, you can use average cost basis of $100 a share. Sounds as if you aren't planning on selling all at once

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Re: Determining cost basis of inherited shares of stock

Post by kaneohe » Wed Sep 11, 2019 3:01 pm

Frisco Kid wrote:
Wed Sep 11, 2019 2:11 pm
Want to be sure I understand..... upon my mom's death in 1990 I inherited jointly with my dad 1/2 the shares at market price the day of her death and the other half of the shares at market price the day of my fathers death in 2013? That would be significant as the share price difference is roughly $117.00 per share and in fact would give me a cost basis ABOVE today's market price. Am I understanding this correctly?
Yes, I believe so. What I was questioning was this:
Supposed you inherited 1000 shares from your mom w/basis/sh of 10 = 10K basis; you then inherited 1000 shares from your dad w/
basis of 20/sh=20K. What I am wondering is if you have 2 groups of shares w/ different cost basis....1000sh @10/sh & 1000sh @20/sh or if you have 1 lot of 200sh @ 15/sh. If a married couple had jointly owned the 2K shares, I believe the survivor would have 1 lot w/ 1 cost basis/sh.
I am not sure of your situation...........not a married couple but owned shares jointly no one owned any particular shares.

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Re: Determining cost basis of inherited shares of stock

Post by delamer » Wed Sep 11, 2019 3:06 pm

Frisco Kid wrote:
Wed Sep 11, 2019 2:11 pm
Want to be sure I understand..... upon my mom's death in 1990 I inherited jointly with my dad 1/2 the shares at market price the day of her death and the other half of the shares at market price the day of my fathers death in 2013? That would be significant as the share price difference is roughly $117.00 per share and in fact would give me a cost basis ABOVE today's market price. Am I understanding this correctly?
Sorry, but I think you are confusing people.

When your mother died, you either inherited all the shares jointly with your father or you inherited half of the shares (and he inherited the other half). What you didn’t do when she died is “inherited jointly with my dad 1/2 the shares.”

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Re: Determining cost basis of inherited shares of stock

Post by Frisco Kid » Wed Sep 11, 2019 4:13 pm

Delamer makes a good point. Let me re-word my question. I inherited jointly with my dad in 1990 all the shares upon my mothers death. The question is do I receive a stepped up basis on my dads shares upon his death in 2013 and if so how is it calculated? Sorry if I confused anyone.

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Re: Determining cost basis of inherited shares of stock

Post by Phineas J. Whoopee » Wed Sep 11, 2019 4:31 pm

See Gill's correction just below. Thank you for the correction, Gill.

Yes, when you inherited your father's shares the basis was based on his estate lifetime, not your mother's.

Also, the stepped-up basis applies to the day the person inheriting the shares takes possession of them, as approved by a probate court if necessary. Prior to that time they belong to the decedent's estate and their value is available to settle any of its debts.

Arrangements to transfer assets upon death, like for a CD or IRA, go around the probate process, at least in jurisdictions I know about.

PJW
Last edited by Phineas J. Whoopee on Wed Sep 11, 2019 6:32 pm, edited 2 times in total.

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Re: Determining cost basis of inherited shares of stock

Post by Gill » Wed Sep 11, 2019 6:28 pm

Phineas J. Whoopee wrote:
Wed Sep 11, 2019 4:31 pm
Yes, when you inherited your father's shares the basis was based on his estate, not your mother's.

Also, the stepped-up basis applies to the day the person inheriting the shares takes possession of them, as approved by a probate court if necessary.

PJW
Are you saying that a date other than date of death is used to establish basis? Are you saying this is the date of distribution from the estate to the beneficiary? If so, this is incorrect. Date of death value establishes basis except in the very rare instances where alternate valuation may be used.
Gill
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Phineas J. Whoopee
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Re: Determining cost basis of inherited shares of stock

Post by Phineas J. Whoopee » Wed Sep 11, 2019 6:30 pm

Gill wrote:
Wed Sep 11, 2019 6:28 pm
Phineas J. Whoopee wrote:
Wed Sep 11, 2019 4:31 pm
Yes, when you inherited your father's shares the basis was based on his estate, not your mother's.

Also, the stepped-up basis applies to the day the person inheriting the shares takes possession of them, as approved by a probate court if necessary.

PJW
Are you saying that a date other than date of death is used to establish basis? Are you saying this is the date of distribution from the estate to the beneficiary? If so, this is incorrect. Date of death value establishes basis except in the very rare instances where alternate valuation may be used.
Gill
Sometimes I end up being wrong. Thank you for the correction.

I'll go back and strike through the bad info.

PJW

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Re: Determining cost basis of inherited shares of stock

Post by BuddyJet » Wed Sep 11, 2019 7:08 pm

I had to deal with this issue from the executor side rather than beneficiary. As executor, i could elect to value as of date of death or six months later, subject to some additional rules.

You might check with the executor to see what date and valuation was chosen for the estate return since that would be your basis.

Here is an article about basis.

https://www.investopedia.com/ask/answer ... -asset.asp

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Re: Determining cost basis of inherited shares of stock

Post by RickBoglehead » Wed Sep 11, 2019 7:26 pm

Frisco Kid wrote:
Wed Sep 11, 2019 4:13 pm
Delamer makes a good point. Let me re-word my question. I inherited jointly with my dad in 1990 all the shares upon my mothers death. The question is do I receive a stepped up basis on my dads shares upon his death in 2013 and if so how is it calculated? Sorry if I confused anyone.
Let's say there were 100 shares. When your mother passed, all shares got the basis adjusted. Since these were jointly owned by you and your father, 1/2 of them maintain the cost of the 1990 date, the other get the cost from his death in 2013.
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Re: Determining cost basis of inherited shares of stock

Post by livesoft » Wed Sep 11, 2019 7:42 pm

Frisco Kid wrote:
Wed Sep 11, 2019 2:11 pm
Want to be sure I understand..... upon my mom's death in 1990 I inherited jointly with my dad 1/2 the shares at market price the day of her death and the other half of the shares at market price the day of my fathers death in 2013? That would be significant as the share price difference is roughly $117.00 per share and in fact would give me a cost basis ABOVE today's market price. Am I understanding this correctly?
You accounted for the Chevron stock split, right?
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Re: Determining cost basis of inherited shares of stock

Post by Gill » Wed Sep 11, 2019 8:12 pm

BuddyJet wrote:
Wed Sep 11, 2019 7:08 pm
I had to deal with this issue from the executor side rather than beneficiary. As executor, i could elect to value as of date of death or six months later, subject to some additional rules.

You might check with the executor to see what date and valuation was chosen for the estate return since that would be your basis.

Here is an article about basis.

https://www.investopedia.com/ask/answer ... -asset.asp
Very limited use. Alternate value must reduce the size of the estate and the estate tax.
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

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Re: Determining cost basis of inherited shares of stock

Post by RickBoglehead » Wed Sep 11, 2019 8:20 pm

livesoft wrote:
Wed Sep 11, 2019 7:42 pm
Frisco Kid wrote:
Wed Sep 11, 2019 2:11 pm
Want to be sure I understand..... upon my mom's death in 1990 I inherited jointly with my dad 1/2 the shares at market price the day of her death and the other half of the shares at market price the day of my fathers death in 2013? That would be significant as the share price difference is roughly $117.00 per share and in fact would give me a cost basis ABOVE today's market price. Am I understanding this correctly?
You accounted for the Chevron stock split, right?
You start on that date in 1990, and have to account for every split, spinoff, etc on your shares. Same for his shares starting in 2013.

Looks like 2 stock splits for you, none for his shares.

https://www.chevron.com/investors/stock ... lithistory
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Re: Determining cost basis of inherited shares of stock

Post by Frisco Kid » Thu Sep 12, 2019 8:39 am

Using Netbasis was able to obtain a cost basis per share as of the date of her death in 1990. They adjust for all stock splits as part of their calculation. On that date she had 353 shares at $73.62 per share. Those shares over the years through splits became 1412 shares ( no dividends reinvested) according to their calculations total cost basis is $25,989 and per share $18.40. It appears they divided total shares today by the 1990 total cost basis to arrive at that number. I do not understand how to use this information to determine the step up basis as of my dad's passing in 2013, all splits were prior to his passing. Your thoughts and suggestions are greatly appreciated,

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Re: Determining cost basis of inherited shares of stock

Post by not4me » Thu Sep 12, 2019 8:54 am

Frisco Kid wrote:
Thu Sep 12, 2019 8:39 am
Using Netbasis was able to obtain a cost basis per share as of the date of her death in 1990. They adjust for all stock splits as part of their calculation. On that date she had 353 shares at $73.62 per share. Those shares over the years through splits became 1412 shares ( no dividends reinvested) according to their calculations total cost basis is $25,989 and per share $18.40. It appears they divided total shares today by the 1990 total cost basis to arrive at that number. I do not understand how to use this information to determine the step up basis as of my dad's passing in 2013, all splits were prior to his passing. Your thoughts and suggestions are greatly appreciated,
You need to read up on calculating step-up basis -- easy to calculate. Company web site will have the info you need; just need to know your father's date of death, whether it was on a day the market was open, etc. It isn't complicated.

Of the 1412 shares now, 706 you got when your mother died & had a value of $12994.50 (roughly based on your number above). That works out to be $18.405 per share. Then determine the stock price you are stepping up to for your fathers half -- that will be the basis for the other half.

If Compushare will let you sell by specific id, you can do that. Or, you might consider transferring to another brokerage.

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Re: Determining cost basis of inherited shares of stock

Post by RickBoglehead » Thu Sep 12, 2019 9:00 am

Frisco Kid wrote:
Thu Sep 12, 2019 8:39 am
Using Netbasis was able to obtain a cost basis per share as of the date of her death in 1990. They adjust for all stock splits as part of their calculation. On that date she had 353 shares at $73.62 per share. Those shares over the years through splits became 1412 shares ( no dividends reinvested) according to their calculations total cost basis is $25,989 and per share $18.40. It appears they divided total shares today by the 1990 total cost basis to arrive at that number. I do not understand how to use this information to determine the step up basis as of my dad's passing in 2013, all splits were prior to his passing. Your thoughts and suggestions are greatly appreciated,
As I said in my post just before you posted this, there were no stock splits after he passed.

You take the opening and closing price on the date of his death, find the average, and that's the cost per share on HIS ownership. Done.

The lack of dividend reinvestment for your mother's shares that you inherited certainly makes things cleaner in determining cost.
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Re: Determining cost basis of inherited shares of stock

Post by kaneohe » Thu Sep 12, 2019 11:26 am

This is a nice site for getting historical quotes on a specific date:
http://bigcharts.marketwatch.com/

enter the symbol and hit "historical quote" and then input the date .

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