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I received from my grandparent's stocks (as a gift) which I have sold this year (2016). Is the basis that I use for the loss at the purchase or at the day of receiving the gift?

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It depends on a few factors, but it's pretty easy to nail down.

If fair market value (FMV) when gifted was higher than your grandparents' basis, then you use their basis, but can adjust that basis up if they paid gift tax.

So, if your grandparents had a $500 basis, gifted to you when the value was $1000, then your basis is $500.

If fair market value when gifted was lower than your grandparents' basis, then it depends on whether or not you sold at a loss or profit.

Example would be, grandparents' basis is $1000, FMV when gifted is $900:

  • If you sell for $1100, your basis is $1000
  • If you sell for $800, your basis is $900
  • If you sell for $950 you report no gain or loss.
  • The last example is great. Basically, you can't 'gift' a loss. – JTP - Apologise to Monica Apr 10 '17 at 2:34
  • Thank you! I was trying to remember the basis rule from my tax class. Well done! – Liam Apr 10 '17 at 3:57
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    Is it fair to assume that selling for any amount between $900 and $1000 (in this scenario) means you report no gain or loss? Or only that exact middle-point? – CactusCake Apr 10 '17 at 21:37
  • @JoeMalpass Yep,any value between the two bases results in no gain or loss. – Hart CO Apr 10 '17 at 22:24

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