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When selling a portion of stocks, can I use the average cost per share when determining the gain? For example, if I bought 100 shares of a co. and I now own 200 shares because of a stock split and I want to sell 50 of the shares, can I use the average cost of the 200 shares to do that?If not, how do I show my gain?

Let me take a shot here. We have a terminology problem. "Average cost basis" is a tax term of art, and it applies only to mutual funds, not to individual stocks. When you sell stocks, you must compute the basis of the shares sold. You can read a lot about that process in the FAQ and IRS Publications 550 and 551.

As for splits, when a split happens you adjust your per-share basis, but you do it share-by-share. For example, let's say you've made the following purchases of XYZ:

1/2/1999: 100 shares @ $10 per share basis
1/2/2000: 100 shares @ $15 per share basis

On 1/2/2001 XYZ splits 2 for 1. You now own:

200 shares @ $5 per share basis with a 1/2/1999 holding period
200 shares @ $7.50 per share basis with a 1/2/2000 holding period

If you sell less than the 400 shares you own, you compute the basis of the shares sold. (See "FIFO" and "specific identification" in the references I gave you.)

Hope this clears, rather than muddies, the waters.

Phil Marti
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