How do I treat the sale of stock given to me to pay me back for a loan. Can I deduct the loan amount from the increase in value of the stock? Is it just treated as a gift

[boxpoo12--]

I loaned about $1,000,000 to a friend over a period of about 8 years. I was given stock as a partial payback of the loan. Stock was worth about $100,000. Stock increased in value to $2,000,000 over a period of many years when I sold some of it. Can I deduct the loan amount from the increase in value? Or do I have to treat the loan as a gift and if so, how do I figure the cost basis of a gift? My friend was working for a start up company and was paid in stock rather than money. I guess you could say I partially supported him for many years. I had expectations of being paid back. 

[Anita01 · Accepted solution]

Did you record the loan amount anywhere?  Was there a document that showed the expected payback and interest rate on the loan?  If you have no real evidence of this money being a loan, then the IRS would classify it as a gift to your friend, and the stock given to you was also just a gift.  As such, your cost basis in the stock would be the same as your friend's cost basis.  You would need to discuss this with your friend to determine his cost basis in the stock, such as whether he claimed it in any way when he received it and what amount he used to claim it.