My father recently passed away leaving my mother with the brokerage accounts and me as the trustee. I am trying to see what the capital gains are if I should sell BRKS.
My father looks to have owned 1500 shares of HELX in his portfolio that he acquired around two years ago. His price looks to be around 16 bucks a share. He owned no BRKS. Then from what I can determine HELX got bought out by BRKS and a stock swap was enacted. However all of the details I do not seem to be able to put together. It looks like the swap was 3:2 - 3 shares of BRKS for two HELX.
If I was to sell BRKS at 18 can anyone tell me if there is a gain on the BRKS?
First the easy part of the answer I can give. HELX was purchased by BRKS for 1.11 shares of BRKS for every share of HELX. So 1500 shares HELX would now be 1665 shares BRKS. The transaction closed Oct 26, 2005.
Now the harder part; capital gains are sales price minus cost basis. If (as an example) your father bought 1500 BRKS for $16, his cost basis would be $24,000. But bear in mind that HELX paid a dividend before it was purchased, so if your father had his dividends reinvested instead of taking them in cash, the amount of the reinvested dividends would get added to the previously calculated cost basis (thus reducing the capital gains tax realized by selling 1665 shares of BRKS at $18.00 and realizing a gain of $5970). Also, the brokerage might have liquidated for cash any fractional shares of BRKS that resulted from the 1.11:1 conversion, which would reduce the cost basis by that amount.
Finally, I seem to remember but am not sure that when someone dies the cost basis of their investments is increased to the cost of the investment on the date of their death. If true, the amount your father paid and whether he reinvested dividends wuldn't matter. You should check this out, as through an anonymous call to the IRS help desk. But be aware that the amount your father paid might have been more than the value at his death (since BRKS has gone up quite a bit recently), and if so you should find out if you would be forced to adopt the lower cost basis (thus increasing the tax).
Thank you for your helpful information. Do you think that BRKS is a sell in the short term? I do not follow the stock so I have no real clue. Also when HELX was purchased by BRKS did that trigger any captial gain?