There are different rules for calculating cost basis if you’ve received the investments from someone else.
Gifts
As a general rule, if the investment is a gift, you use the original buyer’s adjusted basis at the time of the gift as your cost basis. One big exception is if, at the time you were given the investment, its fair market value (FMV) — the price for which it would sell in the marketplace — was lower than the giver’s basis.
If so, you’ll follow different rules for calculating gains and losses. For gains, you’ll still start with the giver’s adjusted basis, but for losses you’ll substitute the FMV at the time you acquired the investment.
If the investment comes from your spouse, whether as a gift or as part of a divorce settlement, you use your spouse’s adjusted basis at the time of the transfer.
No records?
The giver is required to provide documents that you can use to determine an investment’s basis — such as copies of purchase confirmations and contact information for the brokerage firm that handled the purchase — but not all givers have those records. If your basis depends on the giver’s adjusted basis but you can’t find records that tell you what that was, the IRS sets your basis as zero. However, before you settle for zero, it’s best to talk to a tax professional who might suggest other ways to reconstruct the giver’s basis.
None
of the above?
There are other rules for investments received as payment for services, as part of a trade for other property, or as transfers that are part sale and part gift. You can find out more in IRS Publication 551, "Basis of Assets," available on the IRS Web site at www.irs.gov or by consulting with a tax adviser.
