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A friend of mine received some stock as inheritance when his grandmother passed away several years ago. It was given to him in the form of a single stock certificate document.

Since that time the stock has split on two different occasions. Now he has three certificates; 1) the original, 2) after the initial split showing double the #1 amount, and 3) the last one which show double the #2 amount.

My friend wants to sell some of the stock and has contacted the issuing bank in which to convert the certificates to electronic form/book entry form.

Questions:

1) how to calculate the cost basis? These would be long term capital gains for sure. But how does the government treat inheritance of stock and the cost basis?


His basis is the market value of the original shares as of the date of his grandmother's death. His per-share basis is his basis divided by the current number of shares he owns. The holding period for all dates from the date the original shares were put in his name.

Note for lurkers: All sales of inherited property are long-term, but that doesn't affect holding period. In this case it's a moot issue since we're well past a year in the holding period.

2) Is there a FIFO or FILO method or combination thereof that should be considered when selling only a portion of the total shares owned in terms of calculating cost basis and therefore capital gains?

There is, but again moot for your friend since all the shares have the same per-share basis and holding period.

For information about splits and inheritances, see Pubs 550 and 551.

Phil
Rule Your Retirement Home Fool
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