OK, CC friends. I know - I’m an accountant, I should know these thigs…but I don’t!
MIL has gifted to us, over the past few years, a few blocks of “blue chip” stock (just one company). The shares were originaly handed down to her from H’s grandmother. We have them sitting in a TD Ameritrade account. The share price is pretty stable, hasn’t gone up or down much in the years that we’ve held the shares. We’re thinking of selling some shares to fund some home renovations.
Selling looks fairly easy on TD Americatrade - but my dumb question is, how do I know what the basis of the shares is? How do I estimate the tax implications of selling the shares?
Hmm. THAT’ll be interesting. Guess I’ll have to talk to her accountant then.
Does that mean, the basis would be the value of the stock when she received it from HER mother? It’s like a tangled web that I just can’t seem to figure out…I feel so incredibly dumb. This is why we haven’t considered selling any shares yet. We’re too lazy to do the legwork & figure out how to do it.
@JustaMom5465, it depends on whether MIL inherited (basis step-up) or was gifted (basis carry-over) the stock. If you know the approximate dates involved, you can probably do a good faith approximation of your basis. If anyone kept records, you can do better than an approximation, but I’m guessing that both MIL and GMIL didn’t gift or bequeath their entire holding, so you will also have to figure out which specific lots changed hands.
IANAL, or accountant for that matter, but at some point I think you’ll have to come up with a “reasonable reporting position,” arrived at as honestly and ethically as you can, and be prepared to defend it by describing how you arrived at it.
ETA: I reread OP, and you said “handed down” by GMIL, so that’s good news. MIL’s basis was at determined when the shares were inherited. If dividends were not reinvested and more shares not purchased, BINGO! Unfortunately, dividends probably were reinvested.
I’m FAIRLY sure that the shares that she has gifted us are the ones she inherited upon GMIL’s death. I’ll check with her but that would certainly make things easier. I think what I’m hearing is that if the shares were indeed inherited the basis would be the price at the day of GMIL’s death…
I hope that’s the case because if it’s not then it’ll become complicated. These shares have been “in the family” since the 60’s.
So I would just go ahead and sell the shares via TD Ameritrade…and worry about tax reporting when it’s time to file my 2015 return? Nothing to do until then (tax wise)?
@dstark, that’s one of the reasons that I no longer reinvest dividends – you get these pesky small lots of additional purchases. I just send dividends to a sweep MM, and then eventually decide what I’m purchasing.
It also avoids the chances of an inadvertent wash sale if I’m tax-loss harvesting.
I mentioned the date of GMIL’s death because I read this:
Dividends haven’t been reinvested since we’ve owned the stock…I’m not sure about prior to that. I tend to think they weren’t, this was a large block of stock that originally belonged to GFIL who was a “higher-up” in the compay.
You also should plan for the income taxes on the LTCG. If its a significant amount you can make quarterly estimated payments or increase your withholding to cover it in order to avoid a large payment and perhaps a penalty on April 15th next year.
AttorneyMother - what kind of documentation do you think would be adequate? Usually we find out on a phone call…“oh…yeah, by the way, I transfered some stock into your account…”
(This is going to come out wrong and sound REALLY entitled and whiny, so my sincerest apologies in advance) I just wish she’d go back to gifting cash out of her estate instead of stock…ugh.
IIWY, I would put something in the file that documents:
(1) DOD of GMIL and stock prices on that date
(2) if you can get it, some sort of paper trail that demonstrates that MIL got the stock from GMIL via inheritance (or make a note in your file to that effect)
(3) make a note on the confirmation statement from brokerage account for each in-kind stock transfer from MIL that it was a gift from MIL
– regarding this, check that gifts were within $14,000 for each year, otherwise MIL should be filing annual returns reporting “taxable gifts” that will count against her lifetime exclusion. Regardless, you wouldn’t owe Federal taxes on gifts. I know nothing about state taxes.
Yes - MIL is fastidious about gifting under the taxable amount. For the last several years she’s been gifting to H and his 2 brothers, just enough to not be taxed.
I’m curious, would MIL have to consciously choose which shares to gift? In other words, she probably has some shares that were gifted to her from GMIL, and others that she obtained as part of her iheritance. When she gifts the shares, does she specify (?? to the broker??) which ones to sell? How would you know? By the cusips of the shares?
What you suggest MIL may be doing sound like a tracking nightmare and assumes that MIL can identify specific lots. I don’t know what options tax law allows. You should really ask her how she transacts within the brokerage account. Your questions may be moot.
Also, I don’t think the CUSIP number makes any difference as those denote a class of securities only and are not unique to shares within that class.
Inheriting appreciated stock is generally preferable to having it gifted to you, but as the saying goes, don’t look a gift …
Whether MIL has to choose which particular shares to gift depends on her basis accounting. If she’s tracking basis by specific lot (recommended, but extra work): yes. If she’s using average cost or FIFO: no.
