DDad's 20+ years of DRIP...

[cathy63]

I think the problem here is not just figuring out the divs and splits, but also all the spin-offs and what happened to them. You have to know what dates all of those occurred and what percentage of the basis went into each company, and there may have been some return of capital then too.

 

[cathy63]

You could also try this: About Netbasis | NetbasisNetBasis Site

It costs $25, but it looks like it could save you a ton of time if it works.

 

[Texas Proud]

As for erasure of the problem via cost basis step up upon the owner's death, keep in mind that step up will go away if Estate "Death" Tax goes away, as is currently under consideration as part of tax reform.

Have you seen this in any of the proposals or are you just making an assumption?


My assumption would be that there is going to still be a step up in basis since that is not information that is easily at hand after someone dies... and the vast majority of people today do not pay death taxes or even file an estate return.... and the step up is available to them....


Remember, we are not just talking stocks when it comes to basis adjustments and there are still many stocks that basis is not known...

 

[SecondCor521]

Have you seen this in any of the proposals or are you just making an assumption?


My assumption would be that there is going to still be a step up in basis since that is not information that is easily at hand after someone dies... and the vast majority of people today do not pay death taxes or even file an estate return.... and the step up is available to them....


Remember, we are not just talking stocks when it comes to basis adjustments and there are still many stocks that basis is not known...

I am not previous poster. However, I believe there was an adminstration proposal a year or so ago that did eliminate both the estate tax and the step-up in basis. The current administration has stated that they want to eliminate the estate tax; however I have not read whether that includes or excludes the step-up in basis.

 

[GrayHare]

Have you seen this in any of the proposals or are you just making an assumption?

Yes, and written up in the financial rags too. Forbes discussed it some time this year, though I can't find it right now. That's the way it was handled during 2010, the year the Estate Tax went on hiatus.

 

[pb4uski]

IF his taxable income including any share gains can be managed to stay in the 15% tax bracket then the tax on long term capital gains is 0%

I would check with the transfer agent, tax returns, etc and see what you can cobble together as to the basis, gain and the tax impact keeping in mind that he can sell just a portion of it to stay in that 0% tax window if needed. You would only need to go back to when he inherited it because the basis would have been stepped up when he inerited it. Or that netbasis product woudl seem to be well worth the money.

Or just wait and you'll get a stepped up basis when you inherit it from him.

 

[Texas Proud]

Yes, and written up in the financial rags too. Forbes discussed it some time this year, though I can't find it right now. That's the way it was handled during 2010, the year the Estate Tax went on hiatus.

Thanks.... I will have to start looking for that info....


I see many problems with this as basis is normally not known by any survivors... so, when someone bought shares back in the 70s how are you supposed to know what the basis is

 

[unclemick]

You'd tell the IRS what the bottom line of your calculations were on schedule D. The default is they accept it. If they audit you, you show them your calculations. Maybe THEN they'd say your proof was insufficient and they'd say "zero".

If it were me, I'd get what I could from the agent, get price history from Yahoo Finance, then whip up a spreadsheet with a best-guess estimate. I'd use that every year I sold some to keep track of the basis. Unless you're talking really big money, I doubt the IRS would bother you. And if they do, you show them your best effort spreadsheet, which they'd probably accept.

I have done this in the past. Met a couple of nice grey haired ladies at the branch IRS office. That one worked, no audit. Also back in the day have lost records(tornado, Katrina) and got help on another DRIP from TurboTax(customer back then) who based on my initial cash purchases were able to compute basis and cap gains. Again accepted.

Now I also have a ute-Empire District which went private this year owned the DRIP over 30 years.

heh heh heh - Not gonna bit the bullet til I have too. My LAST! Drip. I used to love this stuff.

 

[GrayHare]

Thanks.... I will have to start looking for that info....


I see many problems with this as basis is normally not known by any survivors... so, when someone bought shares back in the 70s how are you supposed to know what the basis is

Reading up on 2010 I see Congress and/or the IRS subsequently tinkered with the 2010 rules to retroactively permit partial or full cost basis step-up, with all sorts of arcane elements, such as special rules if the date of death fell between Dec 1 and 17 of that year. Anyhow, this suggests enough people complained about the loss of the cost basis step up that perhaps at least some step up will be retained even if the Estate Tax soon goes away again.

 

[Texas Proud]

Decided to take a quick look.... found this about some of the proposals for this year....


https://craft.wealthcounsel.com/images/articles/TP-TaxRepeal2017.pdf



In a Forbes article... seems that I was right that there are not that many that pay taxes...

In 2015, there were 2,626,418 deaths in the United States. According to the Internal Revenue Service (IRS), 11,917 federal estate tax returns were filed in 2015 (at that time, the estate tax exemption was $5.43 million). That works out to .45% of all decedents, or less than 1/2 of 1%. Of those, 4,918 federal estate tax returns were taxable (6,999 were nontaxable returns). That brings the percentage of taxable estates for 2015 to .18% or less than 1/4 of 1%.
​

It does seem that some want to repeal the estate tax but not give a step up which would bring in the same or more revenue (I would think more0...

Here is something in another article that mentions taxing gains, but at death instead of an estate tax...

Trump’s proposal states that “capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.” That statement implies that in the absence of an estate tax, Trump would treat death as a recognition event and tax capital gains on death. An exemption of $10 million—it’s unclear whether that is per person or per couple, and whether that is $10 million of gain or $10 million of assets—would apply. Although small businesses and family farms are mentioned, there is no indication that the $10 million exemption would apply only to businesses and farms.


​

Almost all articles seem to think that nothing will get passed... so like most tax changes it is better to wait until something is passed before making any kind of decision that relies on that change...

 

[Blue Collar Guy]

Uhhh. Not sure where this one came from. He's not wealthy, so he doesn't need deductions, and I don't see him giving away ~$135k worth of stock to avoid the work of determining cost basis. .

HAhaha,

 

[Blue Collar Guy]

My parents did this and wanted to let it ride to death and step up basis. Guess what? The utility went private and forced the sale!

Dad's tax accountant did the hard work and got 20 years of past values (from company history) and calculated basis on 80 transactions. I was impressed.

I Had LILCO, which was long island lighting company, they got sold and resold, and then went private I had the same headache.

 

[clifp]

My dad inherited 60 share of AT&T back in the early 1960. In the mid 80s I started to take over my parents investments. I spent a solid weekend in late 80s (pre internet) going through DRIP statements and tax returns trying to determine a basis. Of course AT&T split into baby bells which then started acquiring them and finally one of the Baby Bell bought AT&T. I eventually threw up my hands and said screw it.

She has $55K of AT&T and Comcast stock I really can't sell until she dies and another 40K of 2 other DRIP stocks. Fortunately, she has enough assets in Vanguard mutual funds, which I know that basis, it should be a problem for her but still is PITA.

If you do need to sell my suggestion is to estimate the dividends you got for the last 10 years. Currently Duke has 4.2% current yield and 2.8% dividend growth rate over the last years. I've held Duke for a number of years and the dividends rate has always been around 4-4.5%

Which means that $5,644 that you'd get in dividends this year would be reduced by 7% (4.2%+2.8%) in 2016 to ~$5,398, and ~$5,021 the year before. The stock price has risen on a pretty steady path from 60-85 over the last 10 years so call it $73/share on average.

If you use LIFO that will account for approximately 600 shares on an average basis. Sell enough to keep him in the 0% bracket and at the very worse the IRS might force you to do a lot more work to justify it if you get audited.

 

[ERD50]

Some good suggestions here, but I think the best were kind of scattered across a few posts - I'll give my 2 cents and try to prioritize/organize these previous suggestions for you.

First, you mention that he may need to sell some/all to support himself, so you may not have the option of taking the step-up in cost basis. So first I would (nothing new here, I don't think):

1) Keep some perspective, worst case a default cost-basis of zero $, means worst case a 15% tax hit on any sale, which may only be a small portion of the total (right?). Sure, you want to avoid that, but it's not the end of the world either. Can any be done at a 0% tax hit? Balance the effort against potential $ saved.

2) Stop all dividend re-investments now. Document that they were always DRIP prior to that date. That kills two birds with one stone - he has more income, so less likely to need to sell any (or at least not as much), and it simplifies calculations going forward.

Originally Posted by Running_Man View Post
And if he just stops the DRIP he would have $5,644 a year in dividends to spend

That's big. In just 5 years, he'd have an extra ~ $28,220 he can tap before selling anything.

3) You should be able to get the dividend records going back quite a few years, and if you don't have a record of the reinvested price, estimate it, and you can sell those specific shares (that are > 1 year old). These would be recent, so tracking shouldn't be hard, and gains are probably low. You just list the date acquired as 'various', all long term, and your total purchase and sale prices. Keep a record for yourself, but if it is reasonable, and the IRS doesn't question it, you are fine. If they do question, you have the documentation, no problem. I've used the 'various' several times in the past, never was questioned, as the values were reasonable.

I think I would start now, selling off the recent reinvestments, to stay in the 0% or 15% hit, which is easier when done a little at a time.

4) And if he does need to sell more than the ones that can be documented as reinvestements with known (or at least very close) prices, then consider just using zero basis, the tax hit on that portion may not be worth the effort.

-ERD50

 

[NgineER]

Depending on the value of 'some', you could either:



1) Sell FIFO, and assume the first shares have 0 basis - which is probably a close estimate, and one the IRS won't quibble about

2) Sell LIFO, and you should be able to find the basis for the most recent shares from the transfer agent etc. Wait for the step-up to reset the basis on the older shares.

+1
2), should be minimal impact and easier to find information going a couple of years back at least.

+1 for stopping DRIP now too