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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Stepped up Cost Basis on Death Date: 1/8/2002 10:51 PM
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The average needs to be weighted to show that you are one day from Monday but two from Saturday.

Well, no. The regulation says to weight the average depending on how many trading days there are between the two selling dates. This was a weekend, so there were no trading days. The correct answer is: take the mean of the high and low selling prices on Friday, and again on Monday. Then take the average of those two numbers. The weighting business doesn't apply. Indeed, this very situation is covered in the quoted Reg 20.2031:

Example (3). Assume the decedent died on Sunday, October 7, and that Saturday and Sunday were not trading days. If sales of X Company common stock occurred on Friday, October 5, at mean sale prices per share of $20 and on Monday, October 8, at mean sale prices per share of $23, the price of $21.50 is taken as representing the fair market value of a share of X Company common stock as of the valuation date

(The stuff about weighting is intended to be used when evaluating a thinly traded issue. If the decedent died on a Sunday and the nearest trades were on the previous Thursday and the following Friday, then you would weight the average accordingly - that is, give more value to the nearer trade date.)

I also learned something interesting in looking at Reg 20.2031. If the decedent dies when the stock is ex dividend, the amount of the dividend should be added to the valuation arrived at by averaging prices as above.

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