When you sell stocks, Uncle Sam expects you to provide a cost basis from which to assess capital gains taxes on the sale time. For stock that has been held for a long time, if the original documentation is long gone, the difficulty will lie in assessing the purchase price. Furthermore, the longer you held the stock, the greater the chances that it was split. When a stock is split, the original cost basis also splits.

Look through your brokerage documentation -- or on the stock certificates themselves -- for the number of shares, the acquisition date and the purchase price. If you don't know the price, contact a broker or use online financial databases to find the closing price on the acquisition date.

If you don't know the exact date, find the high and low prices within an estimated date range, and average the results. If you inherited the stocks, the acquisition date is the date of death.

Divide the total purchase price by the number of shares you purchased. As an example, if your documentation shows you purchased 300 shares for a total of $1,200, divide $1,200 by 300 to calculate a share price of $4. If you already have a per-share price, skip this step.

Divide any broker fees by the number of shares purchased, and add the result to the per-share price. Continuing with the example, if you paid $30 in broker fees, divide $30 by 300, and add the resulting $0.10 to $4 to calculate an original cost basis of $4.10 per share. If the broker fee was already included in the purchase total, skip this step.

Research any stock splits after the acquisition date. This information is available from your broker or online financial websites. Multiply the split fractions to produce a single fraction. As an example, if the stock split 2-for-1, that means you received two shares for each one you owned, so the fraction is 2/1. If the stock split 2-for-1, 3-for-2 and then 2-for-1, multiply 2/1 times 3/2 times 2/1 to derive a total split fraction of 12/2, or simply 6.

Divide the original per-share cost basis by the total split fraction to adjust the cost basis for the splits. In the example, divide $4.10 by 6 to adjust the cost basis to $0.68 per share.

#### Tip

- Multiply the number of shares purchased by the split fraction to calculate how many shares you now own, assuming you haven't already sold some. In the example, multiply 300 times 6 to calculate 1,800 shares.

#### Warning

- Reinvested dividends potentially complicate a sale, but you should look at these as separate purchases. As an example, if the original 300 shares paid $0.10 in annual dividends, you would have received $30 (300 times $0.10) in reinvested dividends. If that purchased six additional shares, divide $30 by 6 to calculate the $5 cost basis for those shares.

#### References

#### Photo Credits

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