Gifted Stock Cost Basis: Which Records Should You Keep?

Receiving shares as a gift creates a recordkeeping question that a cash gift does not: what tax basis applies when you eventually sell? Do not assume the share price on the day you received the gift is the answer.

What does the IRS say you need?

The IRS identifies three key amounts for property received as a gift: the donor's adjusted basis immediately before the gift, the fair market value when the gift was made, and any gift tax paid on the gift.

Ask for these records while the donor can help locate them. A brokerage statement showing today's market value is not a substitute for the historical records needed to determine basis. Save the transfer paperwork and identify exactly which shares were given.

Why can gain and loss use different bases?

If the gift-date fair market value is below the donor's adjusted basis, the IRS says the basis used depends on whether the later sale produces a gain or a loss. The donor's adjusted basis generally applies for figuring gain, while the gift-date fair market value generally applies for figuring loss, with required later adjustments.

There can also be a result with neither gain nor loss when the sale falls between those amounts. That is why a single guessed number can produce an incorrect tax calculation.

What if the gift had appreciated?

When fair market value is equal to or above the donor's adjusted basis, the IRS generally starts with the donor's adjusted basis, subject to applicable adjustments. Gift tax can affect basis in some circumstances.

Have a tax professional review incomplete records, later corporate actions or uncertainty about the donor's basis. This article describes gifted property, not inherited property, which has different rules. Avoid selling solely on a rough estimate of the tax outcome. Investments can lose value, and selling can have tax consequences.

Frequently asked questions

Does a gift automatically erase earlier appreciation? No. Gift-date market value does not automatically replace the donor's basis.

What should I request from the donor? Adjusted basis records, gift-date fair market value and information about any gift tax paid.

Sources and further reading: IRS, Basis of Property Received as a Gift (https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/property-basis-sale-of-home-etc/property-basis-sale-of-home-etc).