to find the bottom line for capital gains and losses
Transcript, 2 minutes 55 seconds, for use during week of Jan.
Description: Penny and Susan talk selling stocks,
what basis means, and how it’s determined
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the investor Protection trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, we talked earlier about how important it
is to keep good records. And I know that one of the reasons
it’s important is so that I can figure the tax I owe on
capital gains income correctly.
Penny: That’s right. The tricky part is determining
what is called “the basis” of any stocks you’ve
sold in the past year.
Susan: Uh, would you mind reviewing exactly what basis is ? I
did sell some stock recently and I want to be sure I understand
exactly what I need to know.
Penny: Sure. Your cost basis is typically what you paid
for the shares originally, including the brokerage commission. When
you sell a stock, you use your cost basis and the sale price
of the stock to determine your capital gain or loss.
Susan: Ok. So, if I bought a hundred shares of stock at
ten dollars a share and the brokerage commission to buy and sell
the stock was forty dollars...?
Penny: Then you would figure one hundred shares at ten dollars
per share, or one thousand dollars, plus the forty dollar commission,
which would make your cost basis 1,040 dollars. Let’s
say you sold the shares for $20 each. Your gain – the
amount you pay tax on – would be $960 minus any commission
you paid to sell the stock.
Susan: Thank you. It’s starting to make sense to
me now. What if I didn’t buy the stock, but received
it as a gift instead?
Penny: If you receive stock as a gift, the gift-giver’s
basis becomes your basis. For example, if your Great-Aunt
Sophie gives you fifty shares of stock that she purchased for
five hundred dollars, then your basis would be five hundred dollars,
not the current market value of that stock.
Susan: What if I inherited the stock? For example, my
father left me some stock when he died last year. What
would be the basis for that stock?
Penny: In that case, your basis would be the market value of
the stock on the day your father died.
Susan: Thank you, Penny. This has been really helpful.
Penny: You’re welcome. And remember, for more information
visit the ISU Extension website at extension.iastate.edu and
look for ‘Invest Wisely.’