Purchase Date for Stocks Moved from IRA to Brokerage
I transferred several blocks of stocks from an IRA to a regular Brokerage Account in December 2020. That classifies as an IRA withdrawal and is subject to Regular Income tax rules. I noticed that the purchase date of all the transferred stocks was shown as the date of receipt in the Brokerage Account, rather than the actual purchase date in the IRA. Since I sold some of the stocks before December of 2021, the gains show up as short-term trades. Can anyone add clarity on whether the IRS requires the Effective Purchase Date to be the date of transfer, or if I can legally change the purchase date in my tax filing to the original date of purchase within the IRA? Where would I look in the IRS rules for an explanation and confirmation?
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-13 14:29
Tax deferred account distributions are always taxed at ordinary income rates and cap gains or losses do not apply except for the NUA carveout for appreciated employer shares. Both the cost basis in your taxable brokerage account and the holding period disregard your purchase price and holding period in the tax deferred account. Your holding period for these shares begins on the day after the distribution from the IRA, and therefore you must hold the shares for at least one year and a day in order to report the sale as a LT gain or loss. The cost basis of all shares in the brokerage account should add up to the Box 1 of your 1099R for the IRA distribution, less any cash distributed, and I assume that brokerages do not attempt to reconcile their captured cost basis with the 1099R issued by the plan determining your ordinary income tax for the IRA distribution.
I suspect that brokerages are not making an effort to determine any small value difference between the 1099R figure and their recorded purchase cost basis.
Remember, your cost basis also resets to the value at distribution, as any gains in the IRA before distribution were taxed at the higher ordinary income rates at the time of distribution. Any basis you have in your IRA from non deductible contributions is disregarded for purposes of recording your cost basis in the taxable brokerage account.
Permalink Submitted by Richard Stever on Wed, 2022-04-13 19:14
Thanks – very helpful; I should have looked that up before selling.