Determining Cost Basis for Stock Received Decades Ago

[snorket]

Hi, I have a complicated cost basis question. Decades ago, when I was a kid (I don't know the exact year, but approx 1979), my dad bought some shares of a stock for me, and that stock was on a dividend reinvestment plan, so many more shares were acquired at different price points over the years. Also, along the way were stock splits, symbol changes, etc. I don't have any complete or detailed records of how many shares were initially bought, how many were bought via dividend reinvestment at what prices, etc, and other than a small portion of the shares which were bought in recent years, my broker doesn't have this information either. In 2019 I decided to sell ALL of this stock, and now I have no idea how to calculate the cost basis for all the shares I had. But I don't want to just leave it at $0 either. Can anyone help with this situation?

[Anonymous]

there is no right answer in your situation. I don't know how much is involved. Before going through what I suggest after completing your return except for this issue I would then drop in the sales price and use a zero cost basis to see what using zero will cost you.  for some taxpayers, the gain can be taxed at 0% which means doing all the work suggested won't produce any or only minimal benefits. 

If audited and using a non-zero amount, the agent might have a prove it or lose it attitude.  You could then go to appeals or court which are usually reasonable but it's costly.  Some agents are more reasonable.  I would take the market value on 1/1/79 and 12/31/ 79  and then divide the sum by 2. then do the same for each year for 1980 through 2018  for 2019 I would take the average of the 1/1 and sales date value.  total all these averages and then divide by the number of years.    when doing this you have to take into account any stock splits.    this average would then be multiplied by the number of shares for which you have no cost data. maybe your broker will help gather this info.  one thing I would do is contact the trustee of the dividend reinvestment program to see what history they can provide and use that for those shares. I would also compare the average cost basis for those shares you can obtain to what you developed from the average of all those years for purposes of reasonableness.

[snorket]

Thanks so much for taking the time to write a response! I've already played around with $0 and other numbers to see what potential impact it has, and putting in what I consider to be a reasonable flat cost basis estimate definitely makes a big difference in what I owe on my taxes. I'll look into your suggestions, thanks!!

[Hal_Al]

Unknown basis unknown cost basis

You have to report the sale on your tax return. Lacking any cost basis, the IRS will consider the entire sale amount as taxable. So, you need to make your best effort to determine the original cost basis, even if (worst case) it's a guess. Historical prices of publicly traded stocks are  readily available on the internet and should, at least, satisfy the IRS that your basis wasn't zero; just "google" “Historical Stock Prices". I use http://bigcharts.marketwatch.com/historical/. The stockholder relations dept. at the company  (and/or DRIP administrator) may be able to help.

[snorket]

Hi, question on the math: the stock has had two 2-for-1 splits while I've had it, on 8/10/84 and another on 6/1/93. How do I calculate for these splits? Do I take the stock price average from 8/10/84 thru 6/1/93 and divide that by two, and the the average from 6/1/93 to today and divide that by four?

[snorket]

Hi, question on the math: the stock has had two 2-for-1 splits while I've had it, on 8/10/84 and another on 6/1/93. How do I calculate for these splits? Do I take the stock price average from 8/10/84 thru 6/1/93 and divide that by two, and the the average from 6/1/93 to today and divide that by four?

[snorket]

Hi, question on the math: the stock has had two 2-for-1 splits while I've had it, on 8/10/84 and another on 6/1/93. How do I calculate for these splits? Do I take the stock price average from 8/10/84 thru 6/1/93 and divide that by two, and the the average from 6/1/93 to today and divide that by four?