# Cost Basis of Gifted Stock

How can we determine the cost basis of stock that we received as a gift?

A lot of issues can arise.

It cannot be denied that stock gifts can cause the rising of many issues about taxation. This is because there are various methods for determining the value of the stock based on if the stock is for the sake of income tax or gift purposes.

The possibility of possessing a liability for gift tax is applied only to the one who donates more than a designated cap off-limit, such as fifteen thousand dollars or more in the year 2020, to an individual in the span of a year.

Calculating the cost basis on gifted stock
The one who received the gift is not required to pay a tax on the gift. However, when the person moves forward with selling the stock, there is the requirement to derive the calculation of a value of the stock for the sake of income tax.

The giver’s original cost basis determines the cost basis of the stock that the person received as a gift (“gifted stock”) and the fair market value (FMV) of the stock at the time he or she received the gift.
There are 3 solutions :
1) If fair market value (FMV) is more than the original cost basis, a person should use the original cost basis during the selling process.
2) If fair market value (FMV) is less than the original cost basis, a person who sold the stock for more than the original basis should use the original cost basis in the calculation.

3) If fair market value (FMV) is less than the original cost basis, a person sold the stock for more than the original basis but less than the fair market value at the time of the gift, then selling price will become a cost basis.

Important rule:

Determining the value of the stock for the sake of gift tax

For the year 2020, someone could contribute as much as fifteen thousand dollars to a limitless number of people per year while there was no need to report such gifts or pay a tax on those gifts. If there was the giving of more than fifteen thousand dollars to any particular person, then the scene changed. It was necessary to include a report of the gift when filing taxes. However, there was no need to make any payment of taxes until there is the giving away above eleven million four hundred thousand dollars, which is the present limit for a lifetime–regarding the amount mentioned in the sample as well over the amount of fifteen thousand dollars each year for each person.

Thus, regarding the example, there is no liability for gift tax. But in such cases that the stock was worth two hundred dollars per share, then the gift’s determined value would be designated as twenty thousand dollars. This would make it necessary to conduct a report for this amount, which means that five thousand dollars would undergo an application about the lifetime exemption of eleven million four hundred thousand dollars.

Determining the value of the stock for the sake of income tax

The person who receives the gift is not responsible for any gift taxes when receiving the gift of stock. On the other side of the spectrum, it is noted that in such an instance, if the person chooses to sell the stock, then there is the issue of determining the valuation of the stock for the sake of income taxes. It is at this point that complexities can develop.