Sold common Stock S Corp How to figure cost basis

Forum|Forum|11 months ago
April 9, 2025
2 replies
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My parents started a grocery store business in 1978. Many years later, it was converted to an S Corp. Years later, my parents gifted myself and two siblings 10% (100 shares) each. That was increased to 13% (130 shares). In 2009, the 130 shares were redeemed and replaced with 100 shares. No money was issued or required for the transaction. In November of 2024, the 100 shares were sold to the S Corp for a cash value. My question is how do I determine my cost basis for shares given, shares retrieved and replaced, and eventually shares sold to the corporation?

Not A Product Question

Best answer by Rick19744

Here are my comments:

When your parents gifted you the stock, their stock basis in those shares gifted carry over to you at that time.
Not clear on how you went from 10% to 13%, but if that increase was the result of a gift, then once again you get a carry over basis.
In the meantime, you should have been tracking your tax basis in your S corp stock; begins with the gift, is then adjusted annually for the applicable lines on the K-1, and adjusted once again for the 3% increase.
Your parent's basis at the time of the gift(s) does not come from the balance sheet. It comes from their tax basis schedule they should have been maintaining.
The change from 130 shares to 100 shares sounds like a recapitalization, with only limited facts. In this case, your basis in the 130 shares would carry over to the newly issued 100 shares.
Going forward, you should have been updating your tax basis annually as noted above. This figure is now your cost basis.
I might recommend a tax professional help you in this instance, but that individual will need all the information noted above to provide guidance.
And lastly, no facts on the eventual redemption of stock. The rules of family attribution could very well come into play so you need to make sure this is discussed with the tax professional.

DianeW777

It starts with your parents cost of the shares which would be on their balance sheet a the time shares were created. Once the shares are gifted to you, the cost basis for you is the same as it was in their hand. Only they can give you the cost basis at that time, that basis carries to every stock exchange going forward until sold.

There are two options, one is to do the research and if they had a tax professional do their books and tax returns, they may have an answer. If not, the other option is to put zero in for the cost basis. You can arrive at a reasonable amount by using the capital contributed by your parents at the time the stock was created.

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GWHoustonAuthor

Thanks for responding Diane

Coming up with the basis will have to be done through the corporate CPA but my intended question to be answered here was the retraction of the 13% stock with the reissue of 10% stock. In my thinking, the original 10% (which was upgraded to 13%) was retracted in 2008 by the corporation and since i didn't realize a gain it changes the basis of my stock sale to the year it was reissued, 2009. Am I thinking correctly?

Mike9241

since no gain or loss was reported on the retraction(?), your basis is what you paid PLUS income reported on all the k-1s you got LESS losses, deductions and distributions on those same K-1s. However, it's unclear what you mean by retraction. so, your basis in 2009 is probably not correct for determining gain or loss.

Rick19744Answer

Employee

Here are my comments:

When your parents gifted you the stock, their stock basis in those shares gifted carry over to you at that time.
Not clear on how you went from 10% to 13%, but if that increase was the result of a gift, then once again you get a carry over basis.
In the meantime, you should have been tracking your tax basis in your S corp stock; begins with the gift, is then adjusted annually for the applicable lines on the K-1, and adjusted once again for the 3% increase.
Your parent's basis at the time of the gift(s) does not come from the balance sheet. It comes from their tax basis schedule they should have been maintaining.
The change from 130 shares to 100 shares sounds like a recapitalization, with only limited facts. In this case, your basis in the 130 shares would carry over to the newly issued 100 shares.
Going forward, you should have been updating your tax basis annually as noted above. This figure is now your cost basis.
I might recommend a tax professional help you in this instance, but that individual will need all the information noted above to provide guidance.
And lastly, no facts on the eventual redemption of stock. The rules of family attribution could very well come into play so you need to make sure this is discussed with the tax professional.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

GWHoustonAuthor

Thank Rick. Yes the 10,13, and last 10 were all gifts. And you are prob right that the 13 going back to the corporation was a recapitalization with the managing partners. We do have a corporate accountant and he will eventually come up with our basis however my father, also an accountant, did things in his own interest so we don’t have a running cost basis for any stocks. We wait to see what the damages are.