Thanks for the in-depth answer.
What does someone do when shares were bought a long time ago by someone else and the current owner doesn't know the purchase dates or prices?
She says that they switched brokers somewhere along the way and didn't keep track of cost basis when they did it.
This is what she wrote to me:
He purchased the shares in "batches" over a number of years ... 50 here ... 100 there, etc. At least two of the brokerage firms where he bought shares are no longer in business (Olde) ... Merrill Lynch (weren't they bought out?? In any event, I can't find any record of all the shares. I found a certificate for 120 shares and another one for 50. There are now 3500 shares (of course, that includes all the stock splits). Doesn't it seem like this would happen quite often in estates and that type of situation where nobody knows when or where the shares were bought and/or sold??
This was what I was referring to with respect to the statement I made about dividend reinvestment:
Question: How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?
Answer: The basis of stock that you received through a dividend reinvestment plan:
Is the cost of the shares plus any adjustments, such as sales commissions.
If you have not kept detailed records of your dividend reinvestments, you may reconstruct those records with the help of public records from sources such as the media, your broker, or the company that issued the dividends.
The basis must be determined by using the first-in first-out rule if you cannot specifically identify which shares were sold.