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Can anyone explain in relatively simple terms (possibly by example) how you calculate the cost basis of shares sold in a drip account? As these shares are acquired at different time intervails, will some of the shares be considered as long term gains and those acquired more recently as short term holdings? I have paid taxes on an annual basis and I want to make sure I am not paying taxes twice.Any help you can offer will be greatly appreciated.
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You will need to first determine which shares are long-term (> 1 year) or short term gains (< 1 year).

Determine which month in the past is the cutoff point for gains (shares purchased in Dec 1997 or earlier are long term gains).

Long Term Shares = shares owned as of Dec 1997.
Short Term Shares = shares owned now - Long Term Shares.

Once you have determined which shares belong where, calculate your basis for each. Your total basis for each type of gain is just total cost for all the shares. (You don't need to worry about how many shares were bought when, just how much money was put in).

This calculation is easy. Just add up all your contributions + dividends for each type of gain. This is your cost basis.

For example:

You invest $10,000 Jan 1, 1995.
Each month you contribute $200.
Each year, you are paid $500 dividends (just to keep it simple)

Total long term basis: 10,000 + 3 years * 200 contrib * 12 + 3 years * 500 div. = $18,700
Total short term basis: 1 year * 200 contrib * 12 + 1 year * 500 div. = $2,900

In order to calculate your gain/loss, take the number of shares you got above plus the current share price:

long term gain/loss = (current share price * long term shares) - long term basis.
short term gain/loss = (current share price * short term shares) - short term basis.

rustedSoul
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[[Can anyone explain in relatively simple terms (possibly by example) how you calculate the cost
basis of shares sold in a drip account? As these shares are acquired at different time intervails, will
some of the shares be considered as long term gains and those acquired more recently as short
term holdings? I have paid taxes on an annual basis and I want to make sure I am not paying taxes
twice.Any help you can offer will be greatly appreciated.]]

RustedSoul gave you a pretty nice example in post #6618. If you haven't read it, you should do so.

If you have any other questions, or need clarifications, please post 'em here.

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