My grandfather gave me a stock as a gift and I cashed the stock a few days ago. Now, Tax seanson comes, I used tax software to prepare my taxes, but it said that I should enter the cost basis on the date when my grandfather bought the stock. Then I called the stock company, they told me that I only needed the cost on the date of the stock transfer. I was confused...
If memory serves, your grandfather owed gift tax, if any, from his purchase date until he gifted it to you. That establishes a new "basis" on the date of transfer. You'll owe tax from date of transfer to you until your sell date.
Your tax software is correct. Gifts are valued at the price that the person who gave them to you paid .The recipient's cost basis of stock received as a gift is Fair Market Value at the time of the gift.
This is taxes 101......YOUR basis on a GIFT of stock is the basis that the gift giver has...if he paid $5 per share then that is the basis. If your grandfather had DIED then the basis is(price on) the date of death. look it up on irs.gov type in Pub 17 look at pg 98..."Property received as a gift" in the chapter on basis ******************************* the truth is if you do it as suggested (in error) above the IRS will most likely never find out and you will be fine...BUT ....if they do an audit they WILL tax you on the difference in his basis and the basis you claim. edit: tax softwear is only as good as the question asked and answered. Go to a tax expert and get an opinion. Personally I prefer the IRS website and PUB 17 is the best out there for most questions Freethinkers website gives an nice description of it.
This tax season is for transactions done last year. If you sold the stocks only a few days ago, you can pay the taxes on it next tax season. I hope it's not a huge stack of stocks because you could have saved a ton of money from Uncle Sam if you inherit the stocks instead of receiving them as a gift.