Your basis is the amount of your investment in a stock or mutual fund. You must know the basis of the stock or mutual fund to figure the amount of capital gain or loss you realize when you sell these assets. For most property you purchase, your basis is the amount you paid for the item (cost), including commissions or fees you paid.

What’s the basis of stock or a mutual fund I received as a gift?

The basis is usually the amount the person who gave it to you paid for it.

In some situations, however, the basis might be equal to the fair market value on the day you received the gift. This will happen when the stock’s value is less than the donor's basis on the date of the gift, and you sell the stock for a loss.

To learn more, see the Sale of Property chapter in IRS Publication 17: Your Federal Income Tax.

What’s the basis of stock or a mutual fund I inherited?

The money and property you own when you die -- known as your estate -- might be subject to federal estate tax. If the estate is worth more than the exclusion amount, it’s usually taxable.

The Economic Growth and Tax Relief and Reconciliation Act (EGTRRA) of 2001 originally repealed the estate tax for tax year 2010. Under EGTRRA rules:

• There’s no estate tax for 2010.
• A modified carryover basis system replaces the step-up basis rules for inherited assets.

However, the Tax Relief Act of 2010:

• Reinstated the estate tax and the step-up basis rules for those who died in 2010.
• Created a special election that the estate executor can make to use the rules originally in place for 2010. So, there’s no estate tax and the modified carryover basis rules apply.

To learn more, see the Sale of Property chapter in IRS Publication 17: Your Federal Income Tax.

To learn more about situations that might affect basis, see these tax tips:

• Sale Expenses
• Stock Splits
• Stock Dividends
• Nontaxable Distributions