How do I deal with an escheated investment account that I no longer know the cost basis for?

[brainharness]

I had an investment account escheated by the State of Delaware in late 2018, which was paid out to me in 2019. The 1099-B forms (multiple forms for different properties comprising my account) they sent me only list the final proceeds from sale. The original investments were made many years ago. How do I know what to enter for the cost basis on my tax forms?

[RobertG]

If the account was yours to begin with, then taken and sold by the state, you will have to estimate your basis in the stocks sold as best you can.

It is just as if you sold them yourself, but had no records of your purchase price.

The IRS expects you to use a reasonable method to come up with your basis, based on the year of purchase and price at that time.

The only alternative is to go with a zero basis.

[brainharness]

Thanks, @RobertG. So, in general, is the cost basis the amount that I originally paid for the investments (mutual funds in this case) plus the dividends that were immediately rolled back into the investments?  Or is cost basis just the amount that I originally paid?

[RobertG]

Your basis would include the reinvested dividends if you reported those dividends as income in the years you received them.

[thegman1]

So, does the reply about estimating by the year they were bought or use zero basis apply only because of the "escheated" nature of the investments, or does it apply for anyone who bought mutual funds but thought the bank was keeping track of the cost basis (i.e., before 2012)?  If so, is there a way to estimate the tax hit if you choose to use zero basis?

[ErnieS0]

@thegman1 Zero basis is the default option if you have no idea or record of what you paid for an investment. A zero basis means the entire proceeds are taxable and taxed at a capital gains rate of 0%, 15% or 20%, depending on your income.

Have you contacted your bank or the mutual fund company? They may be able to give you some information to allow you to come up a conservative estimate of how much you paid.

There are several databases available on the Internet that can give you historic prices.