{"id":11205,"date":"2017-12-18T08:00:01","date_gmt":"2017-12-18T14:00:01","guid":{"rendered":"http:\/\/taxprocenter.proconnect.intuit.com\/?p=11205"},"modified":"2019-06-18T10:32:14","modified_gmt":"2019-06-18T15:32:14","slug":"basis-in-the-world-of-tax-stock-basis","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/basis-in-the-world-of-tax-stock-basis\/","title":{"rendered":"Basis in the World of Tax: Stock Basis"},"content":{"rendered":"

Thanks for tuning back into my series on basis<\/a>. In this article, we\u2019ll focus on stock basis and stock options.<\/p>\n

Stock Basis<\/strong><\/p>\n

Usually, the broker will provide basis. However, if the shares are not covered, the broker does not have to provide basis. Covered shares are shares purchased on or after Jan. 1, 2012. Form 1099-B<\/a>, Proceeds from Broker and Barter Exchange Transactions<\/em>, will provide cost basis information for covered shares to both the shareholder and the IRS. Non-covered shares are shares purchased on or before Dec. 31, 2011.<\/p>\n

The fair market value of securities traded on an exchange is ordinarily the average of the high and low quoted prices on the valuation date. If only a small number of shares are traded on that date or if other abnormal market conditions exist, such as an unexpected crash or trading stop, then an alternative method may be necessary to calculate fair market value.<\/p>\n

If the stock is inherited, fair market value at the date of death becomes the new basis, unless the alternative valuation date is used. If that is the case, then all assets get fair market value on that date, six months after the date of death. That means that some items might get stepped up basis and others might get stepped down basis.<\/p>\n

If the stock was a spin-off from another stock, then a spin-off calculator is very useful. It will show the original stock that the spin-off originated from. For example, Lucent is a spin-off of AT&T, but if the client doesn\u2019t know how many shares of Lucent appeared in his stock portfolio, you can use a spin-off calculator to help determine this.<\/p>\n

If the stock is not held at a brokerage, but rather in stock certificates, a call to investor relations is likely the only way to determine basis. Some taxpayers will have the same stock in an account with the company and some shares with a brokerage.<\/p>\n

Stock Options<\/strong><\/p>\n

First, you need to determine what type of stock option it is and request all paperwork from the taxpayer. Some of the gain may already be included in the W-2, and Form 1099-B will not show the correct adjusted basis.<\/p>\n

Here are some indicators that the taxpayer sold stock options:<\/p>\n