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My approach will be to convert a list of each purchase of stock A along with its cost basis and date of purchase to the number of shares of B that I now have. Then as I sell stock B I would apply the sale price to the cost basis of the oldest purchase. Does that seem like the correct approach?

Yes, that's absolutely correct, and that's exactly what I do. I've been through this 4-5 times in recent years, and now have it down to a science. I track stock basis on a spreadsheet, with one line per purchase showing date, number of shares acquired, and cost (this works fine whether it's a direct purchase or reinvested divs). Then in the case of a buyout like yours, I simply start a new column of B shares, where each entry in the B column is the correct multiple of the A column entry. As you sell B stock, you just work your way down from the top (the oldest shares) the appropriate distance, picking up basis from cost column. The messy bit, mentioned earlier, is that because of the cash-in-lieu, you've sold the first little bit of the B shares. Indeed, the numbers almost never work out, so that a sale of B shares invariably turns out to be what's left of one row, then some number of additional rows, then a fraction of another row. (As I noted before, if you sell all your B shares, there's no problem since your basis is just all of what's left...) This sounds confusing, but it's really quite simple if you lay it out on a piece of paper and remember that FIFO = selling oldest first = working down from top.

Lorenzo
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