How to Account for Gains When Stock Is Purchased at Two Different Times

Accounting for multiple stock gains can get complicated at tax time.

Accounting for multiple stock gains can get complicated at tax time.

Buying stock at two different times doesn't fundamentally change how you'll account for your gains. Any time you calculate capital gains and losses, you match up your purchase price with your sales price. If you have multiple purchase prices, you'll just have to treat your sales as if you made them individually, rather than all at once. As a result, you may have both gains and losses on a stock, even if you only made a single sale. Ultimately, you'll match up those individual gains and losses to come up with one total net gain or loss figure on your taxes.

Keep accurate records. When you buy a stock, your broker must send you a form showing relevant information about the trade, including the date of purchase, the number of shares you bought and the price you paid. Although many firms will include this information on your statements, data can always get lost, misplaced or erroneously reported. Have the original record on file to avoid any problems.

Confirm the information on your Form 1099-B. For any year in which you sell stock, your broker will send you Form 1099-B showing the amount of money you received from the sale. Legislation that became effective in 2011 requires brokers to also report the amount you paid for any securities. This is known as your cost basis. Verify that the information you get from your broker -- which will also be sent to the Internal Revenue Service -- matches your own records.

Match up the shares you bought and sold. To account for different purchase dates, you'll have to break your purchases out into separate lots on your tax forms, even if you sell your stock all at once. For example, if you sell 1,000 shares that you bought in four different purchases, you must list four entries on your tax forms. The IRS allows you to identify the shares you want to sell at the time of your sale if you want to sell a specific lot. Otherwise, the IRS requires "first-in, first-out" accounting, meaning the first shares you sold are the first ones you acquired.

Transfer the information on your Form 1099-B to Form 8949. List each individual purchase date under column (b). For column (c), list the same sale date for each purchase, since you sold all of your stock at once. Under the proceeds column (d), list the total proceeds for each individual lot. Assign the proceeds to each lot based on the percentage of your total shares that lot represents. For example, if you bought four lots of 250 shares, each lot should be assigned 25 percent of the total sales proceeds. List the cost of each lot in column (e).

Calculate your gains and losses. Subtract column (e), your cost, from column (d), your proceeds, on Form 8949. The result is your gain or loss for each individual lot. Total the information at the bottom of the form according to the instructions.

Follow Form 8949 instructions to transfer your information to Schedule D. Schedule D will break your gains and losses down into net short-term and net long-term capital gains and losses. Short-term gains will ultimately be taxed as ordinary income, while long-term gains, those held for one year or longer, will qualify for a lower tax rate. Follow the Schedule D instructions to determine where to report this information on your Form 1040.

 

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