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I invested in a DRIP and about a year into it, the stock split 2 for 1, and I was issued more shares based on the split. For basis calculations, do my costs prior to the split get cut in half?

Thanks,
Mike
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Yes, Dusty
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I invested in a DRIP and about a year into it, the stock split 2 for 1, and I was issued more shares based on the split. For basis calculations, do my costs prior to the split get cut in half?

Thanks,
Mike

Yes.
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I'm still a bit unclear about how my prior costs get split (spreading the cost basis over all shares owned post-split vs artificially cutting the price of the pre-split shares in half); here is an example, looking at it another way...

If I buy 100 shares of ABCCorp. for \$30 per share, the cost basis is \$30 x 100 shares or \$3000 (plus any commission, but I'll skip that here).

After my purchase, they have a stock split of one "new" share for each "old" share - a "2-for-1" stock split. I get 100 "new" shares and now have 200 shares.

If I decide to sell, the total basis in the "old" shares was \$3,000. Now that I have 200 shares, don't I spread the cost basis over all of my shares? (My new "per-share" cost basis would be \$3,000 divided by 200 shares, or \$15 per share.

Is that how it works? I don't actually go back and reduce the cost of only the first 100 shares by 2 (to \$15)... rather it comes out in the calculation over all the shares owned post-split, right?

Thanks again,
Mike
No. of Recommendations: 1
If I buy 100 shares of ABCCorp. for \$30 per share, the cost basis is \$30 x 100 shares or \$3000 (plus any commission, but I'll skip that here).

After my purchase, they have a stock split of one "new" share for each "old" share - a "2-for-1" stock split. I get 100 "new" shares and now have 200 shares.

If I decide to sell, the total basis in the "old" shares was \$3,000. Now that I have 200 shares, don't I spread the cost basis over all of my shares? (My new "per-share" cost basis would be \$3,000 divided by 200 shares, or \$15 per share.

Correct.

I don't actually go back and reduce the cost of only the first 100 shares by 2 (to \$15)... rather it comes out in the calculation over all the shares owned post-split, right?

Right again.

In the case of a DRiP, instead of owning 1 share with a cost basis of \$30 and a holding period of 1 year plus 0.26 shares with a cost basis of \$7.15 (\$27.50 per share) and a holding period of 9 months, etc. . . .

You would now own 2 shares with a cost basis of \$30 (\$15 per share) and a holding period of 1 year plus 0.52 shares with a cost basis of \$7.15 (\$13.75 per share) and a holding period of 9 months, etc. . . .

Assuming you've been tracking the DRiP in a spreadsheet, all you need to do is insert a column for post-split shares and multiply all the pre-split share lots by 2. The cost basis by lot doesn't change, but the number of shares in each of the pre-split lots doubles.

Patzer
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OK, good so far. What I have in reality is a DRIP since 1992 with 4 splits along the way, minimal direct purchases I made over the years, and tons of quaterly dividends that added shares. I had no sales until last year, then all were sold at once.

So, in a spreadsheet in one column I added up all the shares accumulated by dividend reinvestment, stock splits, and my few direct purchaase. In another column I added up all the money I spent to buy the direct purchases. I then divided the total cost to me by the total shares I owned at the end, and got a cost-per-share number for the entire run from 1992-2008. That should be all I need, correct?

Mike
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OK, good so far. What I have in reality is a DRIP since 1992 with 4 splits along the way, minimal direct purchases I made over the years, and tons of quaterly dividends that added shares. I had no sales until last year, then all were sold at once.

You sold everything at once, that's a good thing as far as DRIPs go.

So, in a spreadsheet in one column I added up all the shares accumulated by dividend reinvestment, stock splits, and my few direct purchaase. In another column I added up all the money I spent to buy the direct purchases. I then divided the total cost to me by the total shares I owned at the end, and got a cost-per-share number for the entire run from 1992-2008. That should be all I need, correct?

Mike

The per share data is moot if you sold everything at one time.

However, you do need to separate long term vs short term shares.
First do the calculation below
Your cost basis is the sum of - the original purchases, any subsequent purchases + all the quarterly dividends + transaction costs.
Then pro-rate the cost basis into long-term and short-term.
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OK, good so far. What I have in reality is a DRIP since 1992 with 4 splits along the way, minimal direct purchases I made over the years, and tons of quaterly dividends that added shares. I had no sales until last year, then all were sold at once.

OK. That actually simplifies things.

So, in a spreadsheet in one column I added up all the shares accumulated by dividend reinvestment, stock splits, and my few direct purchaase.

That would give you the total number of share you owned.

In another column I added up all the money I spent to buy the direct purchases.

You also need to add in all of the dividends that were used to buy shares.

Keep in mind that for tax purposes, a DRIP is nothing more than buying more shares. So each time a dividend is reinvested, it is exactly the same as if you went out and purchased those shares.

I then divided the total cost to me by the total shares I owned at the end, and got a cost-per-share number for the entire run from 1992-2008.

An interesting mathematical exercise, but totally useless for tax purposes. You don't need that number.

What you do need is to tweak the previous two columns you mentioned. Knowing the total of your shares and your costs is important. You also need to look at only the transactions that happened one year or less before you sold all of your stock. Those are short term transactions rather than long-term.

You'd then have the number of shares and the cost of the shares that you held long term. That will be the vast majority, of course. And you'll know the number of shares and the cost of those shares that were held short term.

That should be all I need, correct?

Nope. Now what you need to do is split the SALE proceeds up between the short and long term holdings.

And this is where figuring a per-share number is useful, although only as an interim step. Take the sale proceeds and divide by the number of shares sold (there's the sale proceeds per share), then multiply by the number of short and long-term shares from the previous step.

Now you've got everything you need to report the sale on your schedule D.

--Peter
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OK - and the short term is purchases or dividend reinvestments that were within a year from the DRIP sell date, right?

Mike
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OK - and the short term is purchases or dividend reinvestments that were within a year from the DRIP sell date, right?

Mike

It doesn't appear that there was a split within the last year, but shares acquired through a stock split have the same purchase date as the original shares.

Debra
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Another thought just occurred to me. Since I payed taxes on the dividends over the years (a 1099-DIV each year), how does that play into the cost basis? Seems if I figure a basis and have a 1099-B with a sales price, then I pay taxes on the difference; BUT most of that difference is due to reinvested dividends which I already was taxed on. I'm confused...

Mike
No. of Recommendations: 1
The reinvested dividends are part of the cost of the shares.