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Hello everyone. I like to do my own taxes, however I'm relatively inexperienced in handling capital gains. I've found the information here much more reliable (and less confusing) than other places on the web, and I was hoping that someone could guide me through the calculation of cost basis in the two scenarios below.

Let's assume for simplicity's sake that all the gains will be long-term, so there's no need to differentiate ST from LT. There are also no losses, and I'm ignoring commissions.

Scenario 1

1. Bought 100 shares of ABC Company @ $10/share for total of $1,000
2. ABC's 100 shares pay a dividend of $30, reinvested at @ $15/share
3. Bought 50 shares of ABC Company @ $20/share for a total of $1,000
4. Sold all 152 shares of ABC Company at $30/share for $4,560.

Is my cost basis $2,000 or do I need to account for the dividend reinvestment as well?


Scenario 2

1. Bought 100 shares of ABC Company @ $10/share for total of $1,000
2. ABC increases to $20/share
3. ABC divests XYZ Co, shareholders receive 1.5 XYZ per share of ABC.
4. As a result, ABC decreases to $13/share. XYZ trades at $4.67/share.
5. I now have 100 shares of ABC @ $13 and 150 shares of XYZ @ $4.67

My cost basis for ABC was $1,000 before the spinoff. How do I determine my basis for ABC and XYZ afterward?


Any help is very much appreciated!

Matt
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Scenario 1

1. Bought 100 shares of ABC Company @ $10/share for total of $1,000
2. ABC's 100 shares pay a dividend of $30, reinvested at @ $15/share
3. Bought 50 shares of ABC Company @ $20/share for a total of $1,000
4. Sold all 152 shares of ABC Company at $30/share for $4,560.

Is my cost basis $2,000 or do I need to account for the dividend reinvestment as well?


You could have spent those dividends on anything you wanted. You chose to invest that capital in ABC Company stock, so it increases your basis.

Vickifool -- cherry-picking the easy question.
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3. ABC divests XYZ Co, shareholders receive 1.5 XYZ per share of ABC.
...

My cost basis for ABC was $1,000 before the spinoff. How do I determine my basis for ABC and XYZ afterward?



Check out the Investor Relations webpage for either (or preferably both) companies. There should be some information relating to the spin-off and how to account for the basis. If you can't find it, or don't understand it, feel free to email or call their Investor Relations department to get a better explanation.
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Scenario 1, your cost basis is $2030.

Scenario 2, you have to ask the company. At the time of the spinoff, there should have been information sent to you as to what percentage of the price of ABC is to be assigned as cost basis for XYZ.

If you sell all 250 shares at the same time, your total cost basis is $1000, and you could divide it up any way you like and the tax result will be the same. If this is a taxable account and you sell one company and keep the other you need some figures which you will need the company to provide. It sounds like to assign $333 as cost basis for XYZ and $667 to ABC would be reasonable, since at the time of the spinnoff the market said the spinoff was worth about 1/3 the value of the combined company.

Best wishes, Chris
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It sounds like to assign $333 as cost basis for XYZ and $667 to ABC would be reasonable, since at the time of the spinnoff the market said the spinoff was worth about 1/3 the value of the combined company.

Just to clarify, it doesn't matter what sounds reasonable. Reasonable and tax law have nothing in common. The only correct answer is how the company tells you to do it. Just don't want the OP misinterpreting that statement.
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Thanks for the replies. I was surprised to find that brokers don't keep basis information for you - all we got with the 1099 was a partial list of transactions and a recommendation to consult a tax advisor. I guess I'll make a point to start keeping detailed records going forward.

Matt
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