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Financial Planning / Tax Strategies
|Subject: Re: Stock split||Date: 1/19/1999 6:53 PM|
|Author: gapfan||Number: 8585 of 122632|
<<<<<If I follow you on your explanation of split shares....correct me if i am wrong....If i started out with say 30 shares @ $50. and now i have 120 after two splits,,and then i sold 30 shares, the cost basis of those would be $50 , the next sale might be @ $25 and so on????? >>>>>>>
Sorry, no. Hope you can follow this:
If you purchased 30 shares at $50 a share, you would have paid (30 x 50)=$1500 plus a commission of say $20. That is your total cost basis for whatever number of shares you currently have or will have in the future. Now, due to splits, you have 120 shares but haven't paid any additional money for those, so your total cost basis remains at $1520 from above. This will be unchanged until you eventually sell some shares.
Now you chose to sell 30 shares. If, at the moment you sell those, you have 120 total shares. (All those shares are equal in value, whether from the original purchase or the split.) 30 shares of the total of 120 shares is a quarter of your holdings (i.e. 30/120). Your cost basis for those shares is thus the $1520 x (30/120) = $380, a quarter of the original cost goes with the quarter of the shares you sell.
What you have left is 90 shares (3/4 of the 120 shares) with a cost basis of $1140 (3/4 of the original cost basis.) You start new calculations from that point.
I prefer 'total cost' over cost per share just because it includes that commission which is also a cost. You could have said each share originally cost $50 plus part of the commission. That single share divided once and then those two divided again to give 4 shares. The $50 is then divided evenly between those 4 shares (remember, they are 'identical' shares) and you get $12.50 per share. If you sell 30 shares with a basis of $12.50 each (30 x 12.5) = $375. Add the buying commission (1/4 x 20) and it comes to the same $380.
I keep track of each purchase (and it has become an enjoyable headache with Gap, Inc.) so I have running cost basis and running shares for each. With an original cost basis of $6.5862 per share, I recalculate a basis for each sale. It is currently $0.0609833 per share were I to sell some today.
Good luck!! Purchase dates for stock are distinct and important, but the individual stock purchased has been "adjusted" through splits and definition so that a share purchased today is essentially identical to a share purchased 20 years ago, both are worth the same.
Gapfan :-) (gee, I wonder why?)
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