The basis of stock or mutual fund shares is usually the amount you paid for them, including commissions or fees you paid.
Ex: Ron paid $1,100 for 100 shares of XYZ stock. When he bought the stock, it was selling for $10 per share. However, the basis of each share isn’t $10. He must divide the amount he paid by the total shares he bought to figure his basis. So, his basis is $11 per share:
$1,100 (amount paid) / 100 (total number of shares) = $11 (basis per share)
Commissions and fees accounted for the extra $100 he paid.
Received stock or mutual fund shares as a gift
If you received stock or shares of a mutual fund as a gift, the basis is usually the total of these:
Amount the person who gave it to you paid for it
Some or all of gift taxes paid, depending on when the property was purchased
However, sometimes the basis might be equal to the fair market value on the day you received the gift. This applies when the value of the stock 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.
Inherited stock or mutual fund shares
If you inherit property from someone, your basis is usually the fair market value on the deceased’s date of death. This applies unless the estate’s executor chooses an alternate valuation date.
Special rules apply for individuals who died in 2010. For that year only, the executor could have made a special election to use a modified carryover basis. This means your basis in the inherited property would be that of the deceased's basis on the date of the deceased's death. The executor of the estate could have increased the basis in the inherited property by using a $1.3 million discretionary basis step-up. Check with the executor of the estate to determine the basis in property inherited in 2010.
To learn more, see the "Sale of Property" chapter in IRS Publication 17: Your Federal Income Tax.