Your cost basis in stock isn’t really important until you sell or dispose of your shares. When this happens, you’ll need to report any gain or loss from the sale to Uncle Sam. Your cost basis is used to calculate any gain or loss, and if you aren’t sure what your basis is, you could report the wrong gain or loss. You can get all the information you need to calculate your basis from your purchase documents or your broker.
Calculate the price per share you paid when you purchased the stock. If you inherit the stock, your initial price equals the fair market value (the current trading price) per share on the date you received the stock.
Add any commission you paid to purchase the stock, and divide the total commission by the number of shares you purchased. The result is your initial cost basis per share.
Account for stock splits. If a split is announced before your sell or get rid of your stock, your price per share changes. If you receive a two-for-one split, the number of shares you own doubles, but your initial cost remains the same. Divide your new number of shares by your initial cost basis to determine your new cost basis in the shares.
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- How to Sell Stock with LIFO or FIFO
- How to Handle Reinvested Dividends on Schedule D
- How to Calculate the Percentage Return on Investment If You Bought Stock on Margin
- How to Account for a Dividend Reinvestment