By Kaye A. Thomas
Current as of January 9, 2015
Determining your basis and holding period for stock acquired from your spouse.
The usual rules for determining basis don’t apply when your receive stock from your spouse. This is true if you receive stock in any of the following ways:
- You receive a gift from your spouse.
- You buy stock from your spouse.
- You receive stock as part of a settlement in a divorce or separation.
In any of these situations, the rule is very simple, and it is hard and fast: your basis is the same as the basis your spouse had immediately before you acquired the stock.
Note: This rule does not apply if your spouse dies and you inherit stock from his or her estate. For those rules, see Inherited Stock.
Although this rule is simple, it is worth taking a moment to think about what it means.
For most gifts, there is a tricky little rule that means you can have dual basis for stock you received as a gift. (For an explanation, see Stock Received as a Gift.) This rule doesn’t apply to gifts between spouses. You simply take the same basis your spouse had.
Here is the really strange part of this rule. (So strange, in fact, that even some tax professionals have a hard time believing it.) If you buy stock from your spouse, you get the same basis your spouse had — no matter what you paid for the stock!
Example: Your spouse bought 200 shares of Microsoft for $80 (total of $16,000). Later, when MSFT is at $125, you buy the stock from your spouse for $25,000. Your basis is only $16,000! If you sell it the next day for $25,000, you will have to report a “gain” of $9,000.
This may seem unfair, but there’s another side to the coin. Your spouse did not have to report any gain when you bought the stock. There is no reporting of gain on sales of stock (or anything else) between spouses, and therefore there is no change in basis.
Divorce and separation
The same rule applies to divorce and separation. Let’s suppose you’re splitting up, and the assets you’re dividing include 100 shares each of two different stocks. One has been Wall Street’s darling, rising from $20 to $60; the other has been a dog, falling from $90 to $55. At a tender moment during the divorce proceedings, your spouse says you can take either stock, and he or she will keep the other one. You can’t believe what a dope your spouse is as you grab for Darling, Inc.
But when you sell your Darling stock for $60, you have only $20 of basis and have to report a gain of $40. By the time you’re finished with taxes, you get to keep maybe $50 per share. Meanwhile your dopey spouse is selling Dog Corp. for $55 and paying no taxes at all. In fact, your spouse reports a loss that results in lower taxes. The end result is that your spouse pockets maybe $63 per share. Which is why they say all’s fair in love and war.