For a gift of stock, what is the recipient's cost basis when stocks are transferred?

Thanks for explaining! So if I understand correctly, when stock is gifted, the recipient only uses the FMV at time of transfer when they end up selling it at a loss compared to that FMV? And if they sell at a gain, they always use the donor's original basis?

That's almost correct. For gifted stock that has decreased in value when gifted, if the recipient sells at a price between the donor's original basis and the FMV at time of gift, it's considered no gain/no loss (wash). For stocks that have increased in value at the time of gift, it's simpler - the recipient always gets the donor's original basis regardless of what happens later. The rules are designed to prevent tax-loss harvesting through family gifting.

Does taxr.ai handle more complex situations too? Like if there were multiple transfers at different times or if some of the shares were acquired through dividend reinvestment?

I'm skeptical of any automated system handling gift basis calculations correctly. Did it generate actual tax forms or just give you the numbers? Did you have the IRS question any of the calculations?

It definitely handles multiple transfers across different dates. The system actually showed me all the lots with their respective acquisition dates and basis information. It preserved the holding period from when I originally bought the shares too, which was important for long-term capital gains treatment. As for your question about the forms, it produces a complete Schedule D with all the necessary information and supplemental worksheets. The IRS accepted my niece's return without any issues. It even flagged some shares that had special wash sale considerations from trades I made before the gift.

How does this Claimyr thing actually work? Do they somehow have a special line to the IRS or something? I've literally never been able to get through when calling about tax questions.

This sounds like complete BS. There's no way to "skip the line" with the IRS. They're notoriously understaffed and overwhelmed. I doubt this service can do anything you can't do yourself with enough persistence.

They use a combination of automated systems that continuously dial the IRS using their callback system. When a slot opens up, they immediately text you so you can take the call. It's not really "skipping the line" as much as having a system constantly trying to get through for you instead of you having to wait on hold yourself. For your skepticism, I totally get it. I was doubtful too until I tried it. The way it works is they handle the waiting and dialing part, and when they get through, you get a text notification that the IRS is ready to talk to you. Then you're directly connected to the agent. They don't intervene in the actual conversation at all.

Thanks for mentioning that! Do I need to do anything on my tax return to report that I gave her these stocks? I think I read something about gift tax forms if the amount is over a certain value.

If the total value of all gifts you gave to your daughter in the calendar year exceeds the annual gift tax exclusion (which is $17,000 for 2023, and will likely be higher for 2025), then you would need to file Form 709 (Gift Tax Return). Even if you do have to file Form 709, you likely won't owe any actual gift tax unless you've used up your lifetime gift tax exemption, which is several million dollars. The form is more for tracking purposes.

Wait, really? So if my dad gives me stock he's held for 10 years and I sell it the next day, I still get the lower long-term capital gains tax rate? That seems like a huge advantage!

Exactly! That's one of the key benefits of receiving gifted stock versus inherited stock. With gifted stock, you get the donor's holding period, so if they held it for over a year, you immediately qualify for long-term capital gains rates even if you sell right away. This is called "tacking" the holding periods together. It's definitely a tax advantage worth considering when families are doing financial planning with stock transfers.

This is really helpful information! I'm new to understanding stock gift taxation and had no idea about the "no man's land" concept where there's no gain or loss reported. That dual basis rule seems like it could get confusing quickly. One question - when you mention keeping records of the fair market value on the transfer date, is there a specific source the IRS prefers for determining FMV? Like should it be the closing price that day, or average of high/low, or does any reasonable method work as long as it's documented? Also, does the record-keeping requirement apply to the person giving the gift too, or just the recipient?

Great questions! For FMV documentation, the IRS generally accepts the closing price on the date of transfer as the most straightforward method. If markets were closed on the transfer date, you'd typically use the closing price from the last trading day before the transfer. Some people use the average of high/low for that day, which is also acceptable, but closing price is simpler and widely accepted. Both the donor and recipient should keep records, but it's especially critical for the recipient since they'll need to support their basis calculations when they sell. The donor needs records mainly for gift tax reporting purposes if the annual exclusion is exceeded. I'd recommend keeping: (1) brokerage statements showing the transfer, (2) documentation of the stock price on transfer date (screenshot of financial website, newspaper clipping, etc.), and (3) records of the donor's original purchase information. Having all this organized upfront saves major headaches later during tax preparation!