Message Font: Serif | Sans-Serif
No. of Recommendations: 0
[[In general, the cost basis for shares bought through dividend reinvestment is pretty straightforward.
Potentially a lot of record-keeping, but straightforward nonetheless.]]


[[ Unfortunately, most any time you do dividend reinvestment you end up with partial shares. So, if I
have a partial share, or more accurately several partial shares that make up a full share, how is the
basis determined?]]

More recordkeeping...each partial share is purchased at a different price, at a different date.

[[ Let's say in the first quarter of reinvestment, I get .25 (a quarter) of a share. Let's say the share
price at the time is $4 (just because the math will be easier that way :). The second I get another
quarter-share at a share price of $8, the third another at $12 and finally in the fourth quarter I've got
a full share with my final quarter coming in at $8.]] problem. I assume that your dividends were reinvested as follows:
1st Q = $1
2nd Q = $2
3rd Q = $3
4th Q = $2 (you say that the share price is $8 in the 4th that really what you wanted to say??)

[[ For the sake of simplicity, I'm not even going to deal with the shares in the plan that would have to
be sold first under FIFO or the fact that the amount of the share would probably vary somewhat
over the course of the year. The principles should stay about the same.]]

Thanks for keeping things simple. But in real life, if you were selling partial shares, you WOULD have to deal with these issues.

[[ So at the end of the year, I want to sell this brand-spanking new share because the share price has
rocketed to $20. So what's my basis? Do I take the value of each quarter at the time it was
purchased (or $1, $2, $3 and $2 respectively) for a total share price of $8, making my gain $12?
Or is there some other method that should be used?]]

Nope, you got it. We agree on our basis computations (ignoring the FIFO issues). So your basis would be $8, and your gain would be $12.

Again, fairly straightforward, but just taking more time and recordkeeping.

Remember that it is the dividends received that are the focus on the basis. If you REALLY want to make your life easier, you simply sell the entire shares in your DRIP plan. Then your accounting for basis is very easy: Your original puchase plus your reinvested dividends over the years. Regardless of the number of shares sold.

But when you go off and sell partial shares, you are just giving yourself problems and hassles.

We discuss this issue in a bit more detail in The Motley Fool Investment Tax Guide.

TMF Taxes

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link ( to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on to go directly there.
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.