Stocks (Options, Splits, Traders)
Question: How do I figure the cost basis of stock that split, which gave me more of the same stock, so I can figure my capital gain (or loss) on the sale of the stock?
A stock split occurs when a company creates additional shares, thus reducing the price per share. If you own stock that has split and now own additional shares, you must adjust your basis per share or per the lots of the stock you own.
If the old shares of stock and the new shares are uniform and identical:
- Allocate the basis of the old shares to the old and new shares.
- Determine the per share basis by dividing the adjusted basis of the old stock by the number of shares of old and new stock.
If you purchased the old shares in separate lots for differing amounts of money (a different basis per share in different lots):
- Allocate the adjusted basis of the old stock between the old and new stock on a lot by lot basis. Example: Suppose you have 200 shares of XYZ Inc. common stock. You initially bought 100 shares at $10 per share. You later bought another 100 shares at $12 per share. XYZ Inc. announces a two for one stock split and issues you 200 additional shares. You update your records. The first lot of 100 shares is now 200 shares. Your total basis in the 200 new shares is the same $1,000 basis you had in the 100 shares before the split. The new per share basis is $5 ($1,000/200 = $5). Similarly, your second lot of 100 shares is now 200 shares. Your total basis in these 200 new shares is $1,200, the same as your basis in the 100 shares before the split. The new per share basis is $6 ($1,200/200 = $6).
- Tax Topic 409 - Capital Gains and Losses
- Publication 550, Investment Income and Expenses (Including Capital Gains and Losses)
Category: Capital Gains, Losses, and Sale of Home
Subcategory: Stocks (Options, Splits, Traders)