How Do I Report A Trade If I Don't Know The Cost Basis ?

How Do I Report A Trade If I Don't Know The Cost Basis ?

Taxpayers are expected to know their cost basis for all trades of capital assets. The IRS requires correct reporting of cost basis.

If you have no record of your cost basis, ask your broker. Brokers typically keep records for many years.

If your broker can't help you, try to figure out a date range during which the shares were bought. Then use historical quotes to find the lowest stock price over that date range, and use that for your cost basis.

Example 1: You sold 100 shares at $80 each in 2015. You don't know the precise date of purchase, but you do know the shares were acquired between 2002 and 2004. You find that the lowest price during that range was $36, which you can use as your cost basis.

If you have absolutely no idea, and are unable to narrow down the purchase to a date range, the IRS position of last resort is to use a cost basis of zero.

You should make every effort to avoid the last resort of zero, especially if the sale involves a lot of money. The tax could even be more than the capital gain.

Example 2: You sold 1,000 shares at $58 each in 2015. You have no idea what the cost basis is, and so you use zero. If your tax rate is 24%, you will owe nearly $14,000.

In the prior example, if you can get your cost basis to $24 using the date range strategy, you could save almost $6,000.

Finally, you'll need to have some proof of your cost basis, if the IRS ever asks. If you use a date range, you'll need to be able to convince the IRS how you narrowed it down.