Cost Basis of Transferred Stocks


D

Dad

I transferred stocks from my IRA to another account as
part of a mandatory distribution. The stock now has a new
cost basis based on the price at the date of transfer.
What is the best way to enter these transactions so that
when the stocks are sold from the new account the capital
gains (or loss) are correct in the tax report??
 
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C

Cal Learner-- MVP

I transferred stocks from my IRA to another account as
part of a mandatory distribution. The stock now has a new
cost basis based on the price at the date of transfer.
What is the best way to enter these transactions so that
when the stocks are sold from the new account the capital
gains (or loss) are correct in the tax report??
You transferred the stocks from an IRA account to a non-retirement
account to take the distribution? I wondered if brokers would do
that.

I think what I would do is to enter a Sell in the IRA. Transfer the
cash. Then do a Buy in the non-retirement account at the price the
broker will report for the distribution.
 
A

AFW

I did the same type of IRA activity last March. I tried the
transfer but could not get it to report the Income properly.
After a few trials, I ended up creating an entry in my IRA cash
account (I also "sold" the IRA stock) payable to "IRA
Distribution - name" that also included the taxes paid. The
Category was: Investments - IRA, SubCat: IRA Distribution.

Then in my Broker account I created a deposit in the cash account
for the same amount/payee with Split/Mult. Categories being 1)
Retirement Income/ IRA Distribution (full amount of transfer) and
2) Taxes/Federal Tax - IRA (a negative value). I then did a "Buy"
of the stock for the same price it "sold" for in the IRA.

I was able to keep my Tax Estimator happy giving it an income
(transfer didn't do that) and a tax paid.
 
M

Myrna Larson

Our broker, A.G. Edwards allows distributions via transfer of securities. I
handle the transactions exactly as you describe: sell in the IRA, move the
cash to the taxable account, buy at the same price in the taxable account.
 
D

Dad

Thanks! your solution sounds good. I'll give it a try.Yes
Brokers will transfer stocks as well as cash or bonds for
a distribution and the IRS says the cash basis is the
price on the date of the transfer. This is very good if
you are holding stocks with a low cost basis which have
appreciated significantly in the IRA. After the transfer,
and you wish to sell then the new higher cost basis
minimizes your capital gain.
Thanks again
Dad
 
M

Myrna Larson

I don't believe you can transfer stuff out of the IRA at any valuation OTHER
THAN the current price. AIR, for stocks, our broker uses the average of high
and low price on the distribution date.
 
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D

David Viles

That time is now. I believe you have to claim the capital loss now (or
carry it over to additional years if over $3000 and you can't match it to
gains.)

You'll then enter it as a purchase at the new cost basis in your brokerage
account, followed by a capital gain or loss when you finally sell it.

The mandatory distribution forces it out of the tax shelter.
 
M

Myrna Larson

David Viles said:
I believe you have to claim the capital loss now
I don't understand. There are no taxable gains or losses on stock that is in
an IRA. What loss are you referring to?

Let's say you bought the stock in the IRA at $10 per share. It's now worth
$20 per share. If you transfer 100 shares out, your broker will show a
distribution of $2000 and you pay tax on the entire $2000 at regular income
rates (you don't get the capital gains rate on half of it). It goes into
your taxable account with a basis of $20 per share, $2000 total basis.

It's exactly the same as if you sold the stock in the IRA (where there are
no tax consequences one way or the other), took the distribution in cash,
then used that cash to repurchase the shares at the same per-share price.
What you save is brokerage fees on the sale and repurchase. You don't save
anything in taxes. Now where you get the money to pay the tax due is another
matter <g>.

Conversely, if you bought in the IRA at $10 and it's now worth $5, and you
transfer 100 shares out, that's a distribution of only $500. You pay tax on
the that $500, again at regular income tax rates. The loss is reflected in
the fact that the value of the distribution is only $500. (If you are
required to distribute $2000, you'd have to transfer 400 shares out of the
IRA.)

Capital gains rates come into play only when you sell the stock from the
taxable account. Your basis is calculated from the price on the day you
moved the stock from the IRA to the taxable account, not the price on the
day you originally purchased it in the IRA.
 
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D

David Viles

My mistake. I was up late last night working on a similar transfer, and I
suppose the fatigue in my brain was getting in the way.

I had to laugh when I read what I typed. It should have clicked when I said
"capitol loss" and "tax shelter" in the same post.

Thanks,

David Viles
 

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