how to figure cost basis on a stock that split

1. Calculate the total cost to purchase the stock by adding the purchase price to any transaction fees.
2. Divide your total basis by the number of shares purchased to find your original per-share basis. ...
3. Divide your per share basis by the number of new shares you received for each old share in a stock split to figure your new basis after each ...
4. Use the purchase price of any new shares bought with reinvested dividends as the basis for those shares.
5. Calculate your net proceeds from the sale by subtracting any transaction costs from the selling price.

How do you calculate cost basis on a stock split?

To do this, you’ll need to specify one of these cost basis methods at the time of sale:

• Average Cost – an average of the total purchase cost divided by the total shares held. ...
• LIFO – or Last In, First Out – sells shares in the most recent lot ID first.
• FIFO – or First In, First Out – sells shares in the oldest lot ID first.
• Highest Cost – sells shares in the lot ID with the highest cost basis.

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How to calculate the basis for multiple stock splits?

If the stock splits multiple times, multiply out the multipliers. In the example, if stock XYZ incurred a 2-for-1 split, followed by a 3-for-1 split, you would multiply 2/1 times 3/1 to get 6/1, or just 6. Divide the cost basis per share by this multiplier. This calculates the cost basis per share after the split.

How to figure out cost basis on a stock investment?

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How do I calculate stock splits?

Formula for Calculating Stock Splits

• A Quick Analogy. An easy way to remember how a split works is to think of it like exchanging one dime for two nickels.
• Reasons to Split. Companies may choose to split its stock if the current stock price is too high, especially if the price is significantly higher than other companies in the ...
• Split Ratios. ...
• Calculating Split Ratios. ...
• Price Per Share. ...

What happens to your cost basis when a stock splits?

Your overall basis doesn't change as a result of a stock split, but your per share basis changes. You'll need to adjust your basis per share of the stock. For example, you own 100 shares of stock in a corporation with a $15 per share basis for a total basis of $1,500.

How does a 2 for 1 stock split affect cost basis?

If Nike declares a 2:1 forward split, you then own 200 shares at $60 per share. The value of your investment is still $12,000. Your total cost basis remains $5,000 because that is how much you paid for your shares, but your cost per share declines to $25 ($5,000 divided by 200 shares).

How do you calculate the cost basis of a stock with multiple purchases?

To find your total cost basis for your investment with multiple purchases, add the individual cost basis for each share you own. For example, if you own three shares in Company XYZ, one bought at $10, one at $15, and one at $20, your total cost basis is $45.

How do you calculate capital gains on stock splits?

Subtract your basis for each share sold from the sales price to figure your gain per share. Unless you specify shares to be sold, the IRS treats you as selling the shares you've owned the longest first. In this example, if each of the 100 shares has a basis of $20, your capital gain is $3 per share, or $300.

How do you adjust cost basis after a stock split?

To account for a 2-for-1 stock split, the cost basis per share of the original purchase must be adjusted to reflect the stock split. To calculate the new cost basis per share, divide the cost basis per share by the number of new shares you receive per each original share.

How does the IRS know your cost basis?

You usually get this information on the confirmation statement that the broker sends you after you have purchased a security. You—the taxpayer—are responsible for reporting your cost basis information accurately to the IRS. You do this in most cases by filling out Form 8949.

What if I can't find my cost basis?

First of all, you should really dig through all your records to try and find the brokerage statements that have your actual cost basis. Try the brokerage firm's website to see if they have that data or call them to see if it can be provided.

What is the best cost basis method?

Choosing the best cost basis method depends on your specific financial situation and needs. If you have modest holdings and don't want to keep close track of when you bought and sold shares, using the average cost method with mutual fund sales and the FIFO method for your other investments is probably fine.

What if cost basis is unknown?

Sometimes, unknown cost basis is simply the result of an account pre-dating cost basis records. Other times, unknown cost basis results from a transfer of shares from one account or account type to another.

What is a split adjusted basis?

Split adjusted refers to how historical stock prices are portrayed in the event that a company has issued a stock split for its shares in the past. When reviewing price data, whether in tables or on charts, split adjusted data will reflect the increase in price as if there had been no split in the shares.

Does a stock split affect long term capital gains?

Therefore, if you decide to sell tomorrow all of your shares after a stock split, and the original shares were purchased more than a year ago, the resulting loss or gain would be considered long term. Long term capital gains are generally taxed at a lower rate.

What is estimated cost basis per share?

Typically, when you purchase shares of stock, the cost basis is simply the price you paid for each share. Say you purchased 10 shares of XYZ for $100 per share in a taxable brokerage account. The total cost would be $1,000, and your cost basis for each individual share would be $100.

How to calculate cost basis per share?

If the company splits its shares, this will affect your cost basis per share, but not the actual value of the original investment or the current investment. Continuing with the above example, suppose the company issues a 2:1 stock split where one old share gets you two new shares. You can calculate your cost basis per share in two ways: 1 Take the original investment amount ($10,000) and divide it by the new number of shares you hold (2,000 shares) to arrive at the new per-share cost basis ($10,000/2,000 = $5). 2 Take your previous cost basis per share ($10) and divide it by the split factor of 2:1 ($10.00/2 = $5).

What factors affect the cost basis of a stock?

A variety of factors affect the cost basis of a stock, including commissions, stock splits, capital distributions, and dividends. Several issues that come up when numerous investments in the same stock have been made over time and at different price points; if you can't identify the exact shares sold, you use the first in, ...

What is cost basis?

The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends, and capital distributions. It is used to calculate the capital gain or loss on an investment after it's been sold, for tax purposes.

What to do if your cost basis is unclear?

If your true cost basis is unclear, please consult a financial advisor, accountant or tax lawyer.

How to find basis per share?

Step 1. Divide the amount you paid to acquire the shares by the number of shares you originally purchased. For example, if you paid $2,500 to purchase 100 shares, divide $2,500 by 100 to find your basis per share is $25. Step 2.

What is a stock split?

Stock splits occur periodically and give shareholders new shares based on the number of shares they previously owned. For example, a company might do a two-for-one stock split where each shareholder gets two shares for each old share.

Is a stock split taxable?

Stock splits by themselves aren't taxable events because you don't realize a gain or loss. However, you do need to figure your per share basis for each new share so that when you do sell some of them, you can calculate your gain or loss correctly. Step 1. Divide the amount you paid to acquire the shares by the number of shares you originally ...

What is reverse stock split?

Reverse stock splits occur when the company reduces the number of outstanding shares by converting a specified number of old shares into one new share. For example, a company might exchange three old shares for one new share. As a result, the price per share will go up. A reverse stock split isn't a taxable event because the value ...

Is a reverse stock split taxable?

A reverse stock split isn't a taxable event because the value of what you own doesn't change. For example, if you own 10 percent of the shares of the company before the reverse split, you'll still own 10 percent of the shares of the company after. However, knowing your average basis per share will help you determine whether you're making ...

How to calculate how many shares you own after a split?

Multiply the split fraction by the number of shares you originally owned to calculate how many shares you own after the split. The split fraction is typically voiced, for example, as three-for-two or 3/2. If you owned 55 shares, multiply 55 by 3/2 to calculate 82.5 shares.

What does a reverse stock split mean?

Stock splits or reverse splits change the number of shares you own and their respective values. Often these splits result in a partial share being left over, where you have the option of receiving a cash payout for this partial share. This means you effectively sell the partial share at the fair market value.

Why does cost basis per share change?

However, your cost basis per share does change, because you have more shares to divide among your original investment. Unless you sell all of your shares, you need to calculate the new cost basis per share, so your capital gains or loss may be accurately determined.

Does a stock split affect your basis?

Multiple stock splits increase the number of shares you have, but do not affect your total basis. As an example, if you invested $10,000 for 200 shares of a stock, you still have $10,000 invested even if a 2-for-1 split turns your 200 shares into 400.