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Cost (Basis)

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 buy, your basis is the amount you paid for the item. This includes 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 donor’s adjusted basis at the time of the gift. So, it’s the amount the person who gave it to you paid for it.

Sometimes, the basis might be equal to the fair market value (FMV) on the day you received the gift. This happens 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.

If you'd like to learn more, see the Sale of Property chapter in Publication 17: Your Federal Income Tax at www.irs.gov.

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The Economic Growth and Tax Relief and Reconciliation Act (EGTRRA) of 2001 originally repealed the estate tax for tax year 2010.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

  • There was 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. The estate’s executor can make this to use the rules in place for 2010. So, there’s no estate tax and the modified carryover basis rules apply.

The American Taxpayer Relief Act of 2012 (ATRA) permanently established the federal estate tax. This expired in 2010 before being reinstated for 2011 and retroactively for 2010.

If you'd like to learn more, see the Sale of Property chapter in Publication 17: Your Federal Income Tax at www.irs.gov.

If you'd like to learn more about situations that might affect basis, see these tax tips:

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

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