Was gifted stock and sold it. Do I need to report this on my taxes?

What if the stock was worth less when I sold it than when my dad originally bought it? Would I still need to report it then? Also, how do I even find out what he originally paid if he bought it like 10 years ago?

You still need to report the sale even if you had a loss. In fact, capital losses can be used to offset other capital gains, and up to $3,000 of ordinary income per year. Any additional losses can be carried forward to future tax years. As for finding the original purchase price, ask your dad if he has records of when he purchased the shares. If he used a brokerage account, they should have this information. If records aren't available, you might need to make a good faith estimate based on historical stock prices. The brokerage might also have this information if the shares were transferred directly between accounts.

How does the system know they were gifted shares though? My broker's 1099 doesn't say anything about the stock being a gift. Does taxr.ai actually look at your specific situation or is it just generic advice?

I'm skeptical about these tax tools. What happens if the IRS challenges your return? Do they provide any kind of guarantee or support if you get audited for something related to the gift tax reporting?

The system asks you specific questions about how you acquired the shares during the interview process. When I indicated they were gifted, it walked me through additional questions to properly determine the basis. It's definitely not generic - it was specifically tailored to my gifted stock situation. For audit support, they do offer audit assistance as part of their service. When I used it, they explained that they stand behind their calculations and would help explain my position to the IRS if needed. The documentation they provided for my records was really thorough, which gave me peace of mind.

How much does this service cost? Seems like something the IRS should provide for free. Why should we have to pay to talk to a government agency we already fund with our taxes?

This sounds like BS honestly. The IRS never answers their phones, and when they do, they barely help. You're telling me this magical service somehow gets you through when millions of people can't get help? I'll believe it when I see it.

There is a fee for the service, but for me it was worth every penny considering I was able to get an answer that potentially saved me from incorrectly reporting a $15,000 stock sale. I agree the IRS should be more accessible, but that's the reality we're dealing with right now. It's not a magical service - it's actually pretty straightforward technology. They have a system that dials and waits on hold so you don't have to. When my call was answered, I got a real notification and was connected immediately to the IRS agent. I was skeptical too until I tried it.

This is so important! What state are you in? Some states have lower capital gains rates than others, right? I'm in Washington state and I think we don't have income tax, but I'm not sure how capital gains work here.

I'm in Minnesota where they tax capital gains as regular income. The rates vary a lot by state. Washington actually passed a capital gains tax recently for gains over $250,000, but it's being challenged in court I think. The most important thing is to check your specific state rules. Some states like New Hampshire don't tax earned income but do tax investment income. It gets complicated and the rules change frequently.

You should put two dates: the actual acquisition date (when your grandmother purchased them) for determining long-term vs short-term capital gains, and note somewhere that they were acquired by gift on the date you received them. Most tax software has a way to indicate this. If you just put the gift date, you might not get proper credit for long-term capital gains treatment if your grandmother held them for years before gifting.

California's capital gains rates are brutal! I'm dealing with a similar situation right now. Did you end up having to pay the full penalties or were you able to get them waived? I'm wondering if there's any first-time penalty abatement available for this kind of oversight. Also, do you know if California follows the same "carryover basis" rules as federal for gifted stock, or do they have their own calculation method? I'm trying to figure this out for my own situation and the state tax forms are confusing.

I was actually able to get the penalties partially waived using California's first-time penalty abatement program. You have to show that you've been compliant in prior years and that it was a reasonable oversight. The interest still applied, but saving on the penalties made a big difference. California does follow the federal carryover basis rules for gifted stock, so at least that part stays consistent. The main difference is just the tax rates - California treats capital gains as ordinary income, so you're paying your marginal rate which can be up to 13.3% for high earners (plus the federal rate on top of that). The FTB forms are definitely confusing compared to federal. I'd recommend using tax software that handles both federal and state together rather than trying to figure out the California forms manually. It's worth the extra cost to avoid another penalty situation.

This is such an important distinction that Jessica made! I see so many people get tripped up thinking that because there's no gift tax owed, somehow the whole transaction is "tax-free." The gift tax rules only apply to the giver - the recipient still has full tax obligations when they sell. I'd also add that it's worth keeping really good documentation of the gift transaction itself. Save any emails or texts with your dad about the transfer, and if possible, get him to write a brief letter stating when he originally purchased the shares and for how much. This kind of documentation can be invaluable if the IRS ever questions your basis calculation. The "zero basis" assumption Jessica mentioned is no joke - I've seen cases where people ended up owing thousands more in taxes simply because they couldn't prove their cost basis to the IRS's satisfaction.

This is really helpful, Liam! I'm actually in a similar boat right now - my aunt gifted me some Tesla shares last month that she's owned since 2019. I've been putting off dealing with the tax implications because it seemed so complicated, but your explanation makes it much clearer. One question though - what if the stock has split since your uncle originally bought it? My aunt's Tesla shares have split multiple times over the years, so I'm not sure how to calculate the original basis. Do I need to account for all the stock splits when figuring out what she originally paid per share? Also, did you have any trouble with your tax software handling the gifted stock situation, or did it walk you through it pretty smoothly once you had the original purchase info?

This is exactly the kind of detailed breakdown I was looking for! Tesla's split history has been confusing me for weeks. I really appreciate you walking through the math - that 5:1 then 3:1 calculation makes total sense now. I'm going to reach out to my aunt's brokerage (she uses Fidelity) to get the complete transaction history with all the corporate actions included. Hopefully they can provide a clear breakdown of how the splits affected her original position. One follow-up question - when I report this on my tax return, do I need to somehow indicate that these were gifted shares, or does the tax software just care about the final basis calculation and sale proceeds? I want to make sure I'm not missing any special forms or disclosures that might be required for gifted securities.

For tax reporting purposes, you generally don't need to specifically indicate that the shares were gifted on your return - the tax software will focus on the basis calculation and sale proceeds. However, you should definitely keep good records showing how you determined your basis (the gift documentation, original purchase info from your aunt, etc.) in case the IRS ever questions it. The main thing is making sure you use the correct "carryover basis" from your aunt rather than the fair market value when she gifted them to you. Some tax software will ask how you acquired the shares during the interview process, and if you indicate they were gifted, it should guide you through using the proper basis rules. Fidelity should be able to provide exactly what you need - they typically have detailed records going back years that show the original purchase, all corporate actions like splits, and the adjusted basis. This documentation will be crucial for your records and will make the tax reporting much more straightforward.