Cost basis determination of assets with gifts / inheritance

These are hypothetical examples:

—-

Let’s assume I inherit half the shares of company A from my dad and my sister inherits the other half.

Let’s also assume this was all held in various brokerages across several countries. This isn’t super relevant but it illustrates complexity.

Say, I then sell those. By Japanese law I would have inherited the cost basis as well.

But how would I determine it?

In Japan, the method of (weighted) averages is used to determine the cost basis. Basically every acquisition of shares would lead to a revised cost (basis) per share.

The problem is that without having access to the entire purchase/transaction history of the testator, I would be unable to calculate the correct cost basis. And that history might not exist or may be rather convoluted (say there was a lot of day-trading). The brokerages may record cost basis but their calculation would be perhaps FIFO or LIFO based.

**What is one to do in this situation?**

I know there is a so-called 5% rule in case cost is entirely unknown. But it would seem a bit excessive to demand applying that rule.

A second related example of the same issue:

Assume I don’t own any foreign currency.

Then someone gifts me $100k in cash or into a Japanese foreign currency bank account (let’s ignore gift tax, just assume I pay it from other existing funds). I again would inherit a “cost” basis in JPY.

So when I later convert $100k to JPY cash, to calculate gains I would need to know the per dollar JPY cost basis of the gifting party, i.e. again the weighted average of **all** “receipt of USD funds” events in that person’s lifetime. Something they surely wouldn’t have tracked (in particular if having lived in the US since birth).

It doesn’t seem like it’s really possible to assess this correctly and applying the 5% rule would seem even more unreasonable here.

I also think that or the parallel case of inheritance of foreign currency must be super common.

**So how is this typically handled?**

Also to be fair, the same issue applies to anyone coming to Japan retaining foreign currency savings from their live before Japan. I cannot imagine anyone tracking or being expected to have tracked the average value since birth.

by ixampl

Leave a Reply
You May Also Like