Transfer Tactics for Securities

When you sell securities, the difference between your buying price and your selling price determines the taxable gain or loss. However, the shares you sell might not be shares you bought. When securities are sold after a gift or an inheritance, special rules apply:

After a gift. Say you give appreciated mutual fund shares to your daughter Amy. She picks up your “basis” in the shares–typically, the price you paid. Therefore, when you make such a gift you should be sure your broker or fund company has a record that includes your purchase price and the date of your purchase. Don’t forget to include reinvested distributions, if they were used to buy some of the shares.

After an inheritance. Say you inherited some stock from your great-aunt Maude on May 18. Usually, your basis in those shares will be their value on May 18. It makes no difference how much Maude paid for the shares. Therefore, you should make sure the estate executor reports the date-of-death value to the broker who will be holding the shares for you.

In some cases, the executor will choose to revalue all estate assets exactly six months after the date of death. In this example, if that were to happen the executor should inform the broker of the shares’ value on November 18.