how do capital gains work if you don't know the original purchase price?

Question

So let's say my grandparents bought me 1,000 shares of some stock. They used the wrong address, however, and I never knew about it until after they died. The state got the stock and then, a bunch of years after I guess it was purchased, I found out that the stock existed on the unclaimed property website and claimed it.

So if I were to sell it what would I say was the original purchase price for purposes of paying capital gains? When I got the unclaimed property the letter I got from the state noted the value that it had when I got it so would I just use that amount?

Answer 1

There are two scenarios to determine the relevant date, and then a couple of options to determine the relevant price.

Relevant Date

If the stocks were purchased in your name from the start - then the relevant date is the date of the purchase.

If the stocks were willed to you (i.e.: you inherited them), then the relevant date is the date at which the person who willed them to you had died.

How to figure out

You can check with the company if they have records of the original purchase. If it was in "street name" - they may not have such records, and then you need to figure out what broker it was to hold them.

Figuring the price

Once you figured out the relevant date, contact the company's "investor relationships" contact and ask them for the adjusted stock price on that date (adjusted for splits/mergers/acquisitions/whatever). That would be the cost basis per share you would be using.

Alternatively you can research historical prices on your favorite financial information site (Google/Yahoo/Bloomberg or the stock exchange where the company is listed).

Last Resort

If you cannot figure the cost basis, or it costs too much - you can just write cost basis as $0, and claim the whole proceeds as gains. You'll pay capital gains tax on the whole amount, but that may end up being cheaper than conducting the investigation to reveal the actual numbers.

Answer 2

This is just an Answer as to what might be acceptable to enter for Date acquired, when claiming 0 cost-basis (for an "unknown" scenario/strategy)..

• This is H & R Block software's help tip for Date acquired field (emphasis on "VAR-L" option for long-term, per @littleadv 'Last Resort' Answer):
• Here is a (less-reputable) reference suggesting that "Various" can be entered: https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/my-1099-b-lists-the-cost-basis-as-unknown-i-was-gifted-shares-and-sold-a-portion-of-them-at-two/00/401478#