How to determine cost basis when selling stocks that were gifted to me?

You've actually identified the correct approach. For gifted stock, the cost basis depends on whether the stock's value went up or down since the original owner purchased it. Since the stock went up in value, your cost basis is the same as the original owner's cost basis (which explains why your 1099-B shows the low original purchase price). However, when you file your taxes, you need to show this is a gift by checking the appropriate box on your tax form. If you're using tax software, look for an option that indicates this was a gifted security. The software should handle it properly. You'll need to keep documentation showing when you received the gift and its fair market value on that date, just in case of an audit. When you file, you'll use Form 8949 to report the sale, and you'll check box "E" to indicate the 1099-B doesn't show the correct basis. This is common with gifted securities.

I was in a similar situation last year and used https://taxr.ai to help sort out my cost basis issues with some gifted stocks my parents gave me. The platform analyzed my 1099-B and told me exactly how to handle the situation. What's cool is they explained that with gifted stock, you basically "inherit" the original owner's cost basis if the stock has appreciated since they bought it. So even though it seems unfair, the original purchase price becomes your cost basis - not the value when you received it. The system also walked me through how to properly indicate this on Form 8949 and check the right boxes so the IRS wouldn't flag it. Saved me from potentially making a huge mistake on my taxes.

Just wanted to update that I tried taxr.ai after seeing it mentioned here. Super helpful! I uploaded my 1099-B and explained my gifted stock situation, and it confirmed everything about how the cost basis works with gifts. The site explained that I needed to use the original owner's basis since the stock appreciated, but it also showed me exactly how to report it on Form 8949 with the right adjustment codes. It even generated language I could use if I needed to explain the situation to the IRS. Definitely check it out if you're struggling with this - it's way more affordable than paying a tax pro just for this one question!

Hey, I had a similar issue last year trying to figure out the right cost basis for some stocks my uncle gave me. I spent DAYS trying to get through to the IRS for clarification. Kept calling that 800 number and getting nowhere. Finally found https://claimyr.com and used their service to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c Within about 15 minutes I was actually talking to someone who confirmed I needed to use the original owner's cost basis for appreciated stock gifts. The agent also walked me through exactly how to report it on my tax forms so it wouldn't trigger any flags or issues. Definitely worth it rather than stressing about whether you're doing it right or waiting on hold forever.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I needed to ask the IRS about some stock basis issues too. It actually works exactly as described. Their system called the IRS, waited through all the prompts and hold times (over 90 minutes!), and then called me when they got an agent on the line. I just picked up and was immediately talking to an IRS representative. The agent confirmed everything about gifted stock - that I inherit the original owner's basis if the stock appreciated, and I need to check box E on Form 8949 to explain why my numbers don't match the 1099-B. Seriously saved me hours of frustration.

One thing nobody's mentioned yet - if the stock had DECREASED in value between when the original owner bought it and when they gifted it to you, the rules are different. In that case, your basis for determining loss would be the fair market value at the time of the gift. It's only for gains that you use the original owner's basis. It gets really complicated if the stock was worth less than the original basis when gifted, but then increased in value when you sold it (but still below original basis). Look up the "dual basis" rules if that applies to you.

I'm confused about something. If gifts under $17,000 don't need to be reported, why do I have to pay taxes on the gains that happened before I even owned the stock? Seems like a weird loophole in the tax code.

This is a really common situation that trips up a lot of people! You're absolutely right that it feels unfair to pay taxes on gains that happened before you owned the stock, but unfortunately that's how the tax code works with appreciated gifts. A few key points to remember: - Yes, you must use the original owner's cost basis (what shows on your 1099-B) since the stock appreciated - You'll report this on Form 8949 and check box "E" to indicate the 1099-B basis isn't correct for your situation - Keep documentation of when you received the gift and its fair market value on that date - The good news is you also inherit the original owner's holding period, so if they held it long-term, you get long-term capital gains treatment The IRS sees this type of adjustment frequently with gifted securities, so as long as you properly indicate it on Form 8949 and have your documentation ready, you should be fine. Most tax software will walk you through this process once you indicate the stock was gifted to you. Don't let the fear of an audit stop you from reporting it correctly - the bigger risk is NOT properly adjusting for the gift situation!