Determining cost basis on inherited stock

[disneysteve]

I could use some help figuring out my cost basis on some inherited stock. I'll apologize in advance if this gets long or overly complicated but I'm a bit lost myself. Please ask any questions needed to clarify everything.

My cousin died on 5/17/2021 and left me 2 individual stocks, BK and EXC.
On the date of his death, BK closed at $52.09 and EXC closed at $45.09. I am positive about those numbers as I recorded them at the time, knowing that I'd need them later.
If I Google "BK closing price 05/17/2021" I get the same answer, $52.09. No issue there.

If I Google "EXC closing price 05/17/2021" however, I get $32.15 as a split adjusted price.

A search for EXC split history shows that there was a 1402:1000 split on 02/02/2022. However, all of my records from before and after his death and now show the exact same number of shares. But EXC spun off a division into a new stock, CEG, on 02/02/2022, the same time as that supposed stock split so I'm thinking that's what it refers to.

CEG closing price on 02/02/2022, the first day of trading, was $53.02.
Shareholder services shows my cost basis for EXC to be $45.09 and for CEG to be $45.00.

I'm confused as to what number I use as my cost basis if I sell EXC or CEG. Do I use the number shareholder services is showing? Do I use the split adjusted price for EXC? Do I use the shareholder services number for CEG or do I use the closing price (or perhaps the opening price) on the first day of trading?

Thanks for any guidance you can offer here.

 

[pb4uski]

If I understand you correctly, the $45.09 for EXC and $45.00 for spin-off CEG align with the $45.09 per share that you noted as the closing price on the date of death so I don't see what the problem is in going with the $45.09/$45.00 cost basis reported by shareholder services.

If you take the number of shares of EXC on the date of death @ $45.09 is it the same as the aggregate basis of shares of EXC and CEG that you now own? (I assume that the spin-off of CEG was a non-taxable event).

 

[SevenUp]

Are Investor FAQs | Constellation Energy Corporation and https://investors.constellationenergy.com/static-files/9a7b24f2-4a36-4f22-9ad9-831673c6c085 helpful?

 

[cathy63]

Use the numbers from shareholder services. The differences are small enough that it shouldn't have much of an effect on the tax you'd owe. In the very unlikely event that the IRS has questions or concerns about it, then "I relied on the company that held the shares and conducted the sale to provide an accurate basis" is a reasonable response.

 

[jldavid47]

I don't know the answer to your question but this calculator might be of help. Good luck.

Spinoff Calculator

 

[disneysteve]

If you take the number of shares of EXC on the date of death @ $45.09 is it the same as the aggregate basis of shares of EXC and CEG that you now own? (I assume that the spin-off of CEG was a non-taxable event).

I'm not quite sure what you're asking. EXC was $45.09 on the date of death and shareholder services still shows my cost basis as $45.09. I also have the CEG shares with the cost basis of $45.00. So the total of the two is more than just the EXC basis alone by over $48,000 (1,076 shares of CEG).

 

[disneysteve]

Are Investor FAQs | Constellation Energy Corporation and https://investors.constellationenergy.com/static-files/9a7b24f2-4a36-4f22-9ad9-831673c6c085 helpful?

Thanks. Having the 8937 is always helpful and I always make sure to pass that along to our CPA.

 

[disneysteve]

Use the numbers from shareholder services. The differences are small enough that it shouldn't have much of an effect on the tax you'd owe. In the very unlikely event that the IRS has questions or concerns about it, then "I relied on the company that held the shares and conducted the sale to provide an accurate basis" is a reasonable response.

That was pretty much my thought. If I can't trust the issuing agency, there's a problem.

I'm thinking about selling the EXC shares as the current price is below my cost basis (assuming $45.09 is correct) so I could harvest that loss which would be helpful at tax time.

I will not be selling the CEG shares any time soon as that stock has skyrocketed and is now around $188 so I've got an unrealized gain of around $153,000 at the moment.

Thanks everybody.

 

[latexman]

I will not be selling the CEG shares any time soon as that stock has skyrocketed and is now around $188 so I've got an unrealized gain of around $153,000 at the moment.

Very nice!

 

[disneysteve]

Very nice!

On paper, yes. I wish it was in a tax-sheltered account and I could sell it without impact but it's not.

 

[RetiredHappy]

Just ask the brokerage to reset the cost basis to the death of your cousin.

 

[pb4uski]

On paper, yes. I wish it was in a tax-sheltered account and I could sell it without impact but it's not.

Well if it ends up all being at 15% then that might not be so bad.

 

[SevenUp]

Thanks. Having the 8937 is always helpful and I always make sure to pass that along to our CPA.

In the explanation for Line 16 it says

For example, if an Exelon shareholder owned a single block of 1,000 shares of Exelon common
stock with a basis of $40 per share and received 333 shares of Constellation common stock in the
Distribution as well as cash for the 0.333 Constellation fractional share, 70.36% of the aggregate
tax basis of $40,000, or $28,144.00, would be allocated to the 1,000 shares of Exelon common
stock, resulting in a tax basis of $28.14 per share of Exelon common stock. The remaining
29.64% of the aggregate tax basis, or $11,856.00, would be allocated to the 333.333 shares of
Constellation common stock. This results in a tax basis of approximately $35.57 per share, with
approximately $11,844.16 allocated to the 333 shares received of Constellation common stock
and approximately $11.84 allocated to the Constellation fractional share in respect of which cash
is received.

Substitute $45.09 for $40 and the number of shares you inherited for 1,000 and the procedure described there should apply to you. Is that how you see it also?

 

[disneysteve]

In the explanation for Line 16 it says

Substitute $45.09 for $40 and the number of shares you inherited for 1,000 and the procedure described there should apply to you. Is that how you see it also?

Just to make sure I'm following that correctly:

I inherited 3,228.709 shares of EXC at $45.09/share.
I received 1,076 shares of CEG (plus $12.70 cash in lieu for fractional shares).

Original EXC cost basis: $45.09 x 3,228.709 = $145,582.49
70.36% of that is $102,431.84. So that becomes my new basis for the EXC shares? That would lower my basis to $31.73/share.
29.64% of that is $43,150.65. So that would be my basis for the CEG shares? That is $40.10/share.

Those numbers are completely different than what shareholder services is showing.

 

[SevenUp]

Just to make sure I'm following that correctly:

I inherited 3,228.709 shares of EXC at $45.09/share.
I received 1,076 shares of CEG (plus $12.70 cash in lieu for fractional shares).

Original EXC cost basis: $45.09 x 3,228.709 = $145,582.49
70.36% of that is $102,431.84. So that becomes my new basis for the EXC shares? That would lower my basis to $31.73/share.
29.64% of that is $43,150.65. So that would be my basis for the CEG shares? That is $40.10/share.

Those numbers are completely different than what shareholder services is showing.

Don't know how shareholder services came up with what they show. You could ask....

The calculations you show look correct. The stock spinoff should not have increased or decreased the basis you inherited. The IRS would object to a basis increase, and you would object to a basis decrease.

 

[disneysteve]

Don't know how shareholder services came up with what they show. You could ask....

The calculations you show look correct. The stock spinoff should not have increased or decreased the basis you inherited. The IRS would object to a basis increase, and you would object to a basis decrease.

Thanks. That makes sense, though now it means my EXC basis is below current market value so I would have a gain if I sold it, not a loss that I can harvest to offset other stuff. Oh well. Gains are good of course.