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Author: FriedaChopsticks Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5068  
Subject: Selling Stock Received as a Gift Date: 1/16/2004 1:01 PM
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I received 5 shares of Microsoft a few years ago as a gift. (It is now at 10-point-something shares due to a split and the new dividend.) I am just starting to put together an investment strategy for myself and I am not convinced that this company matches my goals. I haven't made a final decision yet, but would like to know what I need to do if I do indeed decide to sell the stocks.

* These stocks were purchased directly. I have 5 shares worth of a stock certificate and 5-point-something shares in plan. Should I send in the certificate now? Would it make it easier to sell later on?
* How do I sell if I hold these stocks directly?
* What do I use as my cost basis? I'm guessing the value of the stock on the date my aunt purchased them for me, right? What if (ha!) the value of the stock then was worth more when it was purchased than it is now... can I take a loss on a gift that I essentially didn't ever spend money on? Also, how does the split/dividend factor in?

I could take that last question to the Tax Strategies board, if necessary. I just felt this was a safe place to start. I've never worked with stocks directly; I'm just getting my feet wet at this point.

FriedaChopsticks
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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1807 of 5068
Subject: Re: Selling Stock Received as a Gift Date: 1/18/2004 10:43 PM
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I received 5 shares of Microsoft a few years ago as a gift. (It is now at 10-point-something shares due to a split and the new dividend.) I am just starting to put together an investment strategy for myself and I am not convinced that this company matches my goals. I haven't made a final decision yet, but would like to know what I need to do if I do indeed decide to sell the stocks.

* These stocks were purchased directly. I have 5 shares worth of a stock certificate and 5-point-something shares in plan. Should I send in the certificate now? Would it make it easier to sell later on?
* How do I sell if I hold these stocks directly?


You cannot sell if you hold the stocks directly, except (a) if you are a broker or (b) if the stock certificates are issued to bearer and you arrange a private sale outside the formal market mechanism - say, to your brother-in-law.

Fortunately, pretty much any brokerage will provide a means whereby you can put the stocks into a brokerage account. There may be a fee for this action. Dealing with the stock certificate is separate from dealing with your holdings "in plan". (And in fact when you look at the difference with a broker, you may find that the stock certificate is valid for 10 shares and the "in plan" stuff is such a small fraction of a share that moving it would cost more than it's worth.)

As for the basis, there is a certain limited amount of flexibility. The basis really ought to be what the stock was worth when your aunt gave it to you (and if the value of her gifts to you that year was over $10,000, there would be gift/inheritance tax implications). However if she bought the stock for the purpose of giving it to you, and you can't determine the exact date of the gift, using the purchase date, or the issue date of your certificate, would probably suffice.

NOTE: she gave you five shares, which split to ten. The basis you determine by either of these methods is for THOSE TEN SHARES ONLY. Not for the fractional share.

You received a dividend. That's a taxable event (since this wasn't in an IRA, 401K, or equivalent) and there's a place on your tax forms for it.

You then used that dividend to buy another fraction of a share. The basis for this fractional share is the dividend amount that was reinvested.

As you can imagine, if you hold this position another 20 years you'll have a long list of tiny purchases to keep track of. Fortunately, if you are selling an ENTIRE position then on the tax forms you can put all the different pieces on one line: list the purchase date as "various", total up all the separate, and give a single sale date and proceeds amount. (The proceeds are net of the commission and fees necessary to complete the sale - so if your broker charges a fee for accepting the stock certificate and then you immediately sell the stock, you can deduct that fee from the proceeds.)


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