how to report cost base if some shares were sold before?

newbie12345 · Post by **newbie12345** » Fri Sep 07, 2012 1:46 pm

Hi Nelsona and other people with experiences,

I have some question about cost base calculation as below. Do you mind to kindly give me some clue?

When live in canada before year 2003

I bought Stock A using my own trading account #1 with $10,000 for 100 shares

Also, I bought Stock A through my employer's stock purchase plan every month through broker account #2 intotal for 200 shares for $5,000; first 100 shares for $1000 and the other 100 shares for $4000

In year 2003, I sold 100 shares from my account #2.
According to CRA's rule cost base should be everaged.
What is the cost base for this 100 share? 2,500 (everage in account 2) or 5000(everage for all stock A shares in account #1 and account #2)?

In year 2005. I moved to U.S. All the stocks' in my hand for property disposal ended up a capital lost so that I could not use the "purchase price" for the date I moved to U.S.

In year 2006, I sold out 100 shares from account #1. What cost base should I use for this 100 shares when report it to IRS ? $10,000 (actual cost for stocks in this account) ? or $5000? (everage cost amoung account 1 and account 2 before I sold 100 shares from account 2 in year 2003 in canada)?

Now I am going to sold the last 100 from account #2, what cost base should I use
for this 100 shares? $5000(everage amoung account 1 and account 2)? or $4000?(using the first in first out rule) or $2500 (everage amoung account2)?

thanks alot in advance!

nelsona · Post by **nelsona** » Fri Sep 07, 2012 2:42 pm

The average cost basis for canada was the total you paid for ALL your shares, divided by the total of all your shares.

The average cost basis for US was the US dollatr cost of all your purchases (you need to look at each purchase with historical exchange rates) divided by the number of shares you bought.

Each time you sell shares, the average cost basis doesn't change

newbie12345 · Post by **newbie12345** » Fri Sep 07, 2012 3:07 pm

Thanks for the information, I am for the canadian side now.

For the U.S. side,
when file my return to IRS, should I use the everage cost to calculate the cost base for the shares sold after I moved to U.S.?

For shares hold by account #1, may I claim cost base for $10,000 as the cost base? since these shares can be clearly indentified from shares in account #2

For shares hold in account #2, may I use the first in first out rule to claim the cost base as $4000?

nelsona · Post by **nelsona** » Fri Sep 07, 2012 3:38 pm

It is upto you, however (a) you need to use the cost basis in US dollars at the time you bought the shares, and (b) you need to be selling the first-in shares, to claim the first-in cost basis, otherwise its average you must use.

btw, when you take actual exchage rate into consideration, are you sure your shares lost money when they were deemed disposed (in the eyes of IRS?)

newbie12345 · Post by **newbie12345** » Fri Sep 07, 2012 4:13 pm

Thanks for the information and the patience!

Still got two more questions here:

For my case, if I want to use the first in first out rule, for the 100 shares sold before I moved to U.S., which 100 share would be treated as "first out"?

the first 100 shares in account #2 or 100 shares in account #1 ?

account #1 and account #2 are from different broker. shares in account #1 are purchased first.

I write to the broker of account #2 to sell the 100 shares. not broker of account #1.

Also, CRA identify my moving date to be the middle of the year.

IRS think I jointly file my return with my husband so that I need to file the whole year income.

When calculate the disposal tax, which date should I use for the exchange rate?
My moving date or Dec 31/2004?

thanks a lot!

nelsona · Post by **nelsona** » Fri Sep 07, 2012 4:29 pm

for fifo it must all be from teh same account, so if you sold from account 1 it is the first in from account 1, otherwise it is first in from account #2. This is not really cross-border stuff.

To use the deemed disposition value for IRS purpsoses, you you the deemed disposition price, which is by definition on your moving day.

newbie12345 · Post by **newbie12345** » Fri Sep 07, 2012 5:28 pm

thanks a lot, you are so helpful!

the agent on the IRS hotline told me first in first out rule is only for mutual fund shares! not apply to real stock . what a misleading hotline!

newbie12345 · Post by **newbie12345** » Fri Oct 26, 2012 1:31 pm

Hi Nelsona,

Still have question about this issue. Just want to confirm the answer with you:

In the previous post, I asked if a FIFO rule could be used for the stock shared purchased while I lived in canada:

your answer is "It is upto you, however (a) you need to use the cost basis in US dollars at the time you bought the shares, and (b) you need to be selling the first-in shares, to claim the first-in cost basis, otherwise its average you must use. "

I am wondering what does the "(b) you need to be selling the first-in shares, to claim the first-in cost basis, otherwise its average you must use. "
actually mean here.

I have purchased 100 shares for $1000, later, an other 100 shares for $4000.

While I was still lived in canada as resident, I sold 100 shares, according to Canada tax rule, I have to claim the cost basis for this 100 shares as $2500 and when I left canada, I have to claim the cost basis for the rest 100 shares as $2500 for property disposal tax.

Now I am living in U.S. I am about to actually sell the rest all 100 shares(which is transfered into my U.S. stock trading account already)
if I could use the FIFO, the cost basis for this 100 shares would be $4000.
(stock disposal price would not be an option since the stocks are a capital lost either at a cost basis of $1000 or $4000 with proper exchange rate)

I am just wondering if I could use the FIFO rule for the rest 100 share or not?

Thanks a lot in advance for any information!

nelsona · Post by **nelsona** » Fri Oct 26, 2012 3:16 pm

shrug

newbie12345 · Post by **newbie12345** » Fri Oct 26, 2012 3:33 pm

Does "shrug" mean "I don't know" or "either way is fine"?

or "stop bothering me with your silly question"?

nelsona · Post by **nelsona** » Fri Oct 26, 2012 3:50 pm

a bit of all three ;o)

nelsona · Post by **nelsona** » Fri Oct 26, 2012 3:51 pm

If you have a choice in how to report something to IRS, that choiuce is usually only locked in once you begin reporting. So, until you report a sale in US, how you previously treated the sales means nothing.

nelsona · Post by **nelsona** » Fri Oct 26, 2012 4:11 pm

You would of course have to back-fit your choice to your previous sales to determine exactly what shares you still have for US purposes:

if you originally had 500 shares, and you sold 100 while in canada (and not as a US taxpayer), then for US purposes, you have 400 shares bought on certain date and at certin price. If you are choosing FIFO, then you would still have your "newest" . If you chose LIFO, you would still have your "oldest" shares. If you could use the specific share method, then you would have the freedom to choose which ones you specifically sold before, and which ones you have left, etc.

newbie12345 · Post by **newbie12345** » Fri Oct 26, 2012 4:39 pm

Thank you so much for the detailed explaination.

I really appreciate all the help and think you are a very nice person and very skillful with these difficult question. Thanks for being so kind to me. (I would ignore the part that you think my question is silly :-) )