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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Are you able to help me finding the cost basis for 150 shares

Customer Question

Are you able to help me finding the cost basis for 150 shares of NYSEG which I inherited in 1992. In 1999 a stock split gave 150 shares of Energy East. All dividends have been reinvested until the merger with Iberdrola on 9/16/2008. I recently submitted all my book entry shares and have received payment for(NNN) NNN-NNNNshares and will soon receive payment for 300 certificate shares held by me.
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

Dear merlin,

 

When you inherit stock you get what is a stepped up basis. that is the cost basis is the FMV of the stock as of the date of death.

 

so in your case, you need to get a copy of the estate tax return and gift tax return that was used to settle the estate. You can get that by contacting the IRS or the estates executor.

 

Customer: replied 6 years ago.
I knew that and do have that information. When the stock split 2 for 1 do you use that figure to determine the cost basis of those split shares?
Expert:  Ed Johnson replied 6 years ago.

Dear merlin,

 

To figure the cost basis for a stock split, you have two options.

 

As of the date of the split:

 

 

Option one: Take the original cost basis (FMV as of the date of death) of all the shares, and divide it by the new amount of shares you hold to arrive at the new per share cost basis.

 

Option two: take your previous cost basis per share ) and divide it by the split factor (2:1). So in this case, you would divide the FMV per share as of the date of deathby 2 to get the new cost basis.

 

Customer: replied 6 years ago.
Which option is the best taxwise?
Expert:  Ed Johnson replied 6 years ago.

either option gets you to the same result. the only difference is what size numbers you work with.

 

for example

 

If you use total FMV, it would look something like this.

 

1,000 shares whose FMV at death were 10,000 dollars.

With a 2:1 stock split, you would now have 2,000 shares worth 10, thousand dollars.

So 10,000 divided by 2,000 = 5 dollars per share

 

The second method starts with the per share FMV as of time of death,

 

In our example 10 dollars per share.

With a 2:1 stock split it would be 10 dollars per share divided by two = 5 dollars per share.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Ed Johnson
Ed Johnson
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GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee