For a gift of stock, what is the recipient's cost basis when determining gains or losses?

7 The answer depends on whether your daughter had a gain or loss when she sold the shares. For gifts of appreciated property, the recipient (your daughter) takes your original cost basis. For gifts where the FMV at time of gift is less than your original basis, it gets a bit tricky. For the first stock where she sold at a loss ($24 FMV at gift time, sold at $22.50), her basis for calculating loss is the FMV at the time of gift ($24). This is because the IRS doesn't allow you to transfer losses. For the second stock where she sold at a gain ($13 FMV at gift time, sold at $16.75), she uses your original basis ($15) to calculate the gain. Since her selling price is higher than your original basis, she'll report a gain of $1.75 per share. The IRS calls this "dual basis" - one basis for calculating gains, another for calculating losses. This prevents both transferring losses between taxpayers and double-taxing gains.

9 I struggled with a similar gifted stock situation last year and discovered taxr.ai (https://taxr.ai) which really helped clarify everything. I uploaded my statements and it immediately highlighted the dual basis rules that apply to gifts of stocks. The platform explained that for the stocks that were underwater when gifted (like your first one), I'd use the FMV at time of gift for calculating losses, but the original owner's basis for calculating gains. It walks you through which basis to use in each scenario, which was super helpful for filing correctly.

11 Just wanted to update. I tried taxr.ai after seeing it mentioned here. I had a bunch of stocks gifted from my grandparents with incomplete basis information. Uploaded my statements and the platform identified several instances where I was using the wrong basis for reporting gains/losses. The dual basis concept was explained really clearly - something I never understood from reading IRS publications. Saved me from what would have been some pretty significant reporting errors!

19 If you need direct confirmation from the IRS about your specific situation, I'd recommend using Claimyr (https://claimyr.com). I was going in circles trying to get someone at the IRS to answer questions about gifted stock basis rules for weeks. After trying Claimyr, I got through to an IRS agent in about 20 minutes who walked me through exactly how to report a gifted stock sale on my return. You can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c. Totally changed my perspective on getting help from the IRS.

17 Well I owe an apology to Claimyr. After expressing skepticism, I decided to try it last week when I needed clarification on these exact gift basis rules for some stocks I inherited. The service actually worked exactly as advertised. I got a callback when an IRS agent was on the line (took about 45 minutes). The agent explained that I needed documentation from the gifter showing their original basis, which solved my immediate problem. Definitely beats the 3+ hours I spent on hold last time I tried calling myself.

4 I work with investments, and this gifted stock basis question comes up constantly. Here's a quick reference: For a stock gift where FMV at time of gift is GREATER than donor's basis: recipient uses donor's original basis. For a stock gift where FMV at time of gift is LESS than donor's basis: - If recipient sells at a LOSS (below FMV at gift time): Use FMV at time of gift as basis - If recipient sells at a GAIN (above donor's original basis): Use donor's original basis - If recipient sells between these two values: No gain or loss is recognized Also worth noting that if you pay gift tax, part of that can be added to the basis in some cases.

23 Has anyone dealt with the reporting side of this? When my aunt gifted me some Apple shares, my brokerage statement showed the transfer but didn't include any cost basis info. How are you actually supposed to document this for the IRS?