I bought some shares of a stock through Sharebuilder back in
2002. At the initial purchase, I bought $6.00 worth of shares. Over the years, I have bought more shares of this stock. Also over the years, my dividends have been re-invested back into the stock. I sold all shares of this stock in 2006. My question is what would my cost basis be? I know the $6.00 is part of it. Do I also include the additional money I used to buy more shares over the years? Do I do anything with the dividends that were re-invested over the years? Thanks
The total of everything invested, including cash and reinvested dividends, plus purchase commissions. If you acquired any of the shares within a year before the sale, you have to separate those as short-term.
I'm still confused. I bought 250 shares of Exxon in Oct 2001. Reinvested all dividends and paid tax on them. I just sold the original
250 shares earlier this year (2007), and realize I have to pay tax on the cap gain. I have always thought that the cap gain is based on the basis (original purchase cost, including commission) and the selling price (net, taking the commission into account). Question 1: Is this correct?
Question 2: Now I have umpteen lots of Exxon shares (each just a fraction over 1 share). What is the cost basis here? How can I calculate into the basis the taxes I already paid on these shares? Or can I not do that? Thanks in advance for your insights.
Your basis is the total amount you paid to buy the stock over the years: the initial investment, plus the $6, plus the additional money you paid to buy more shares, plus all the reinvested dividends, plus any per-investment or per-trade fees that you paid to ShareBuilder for your purchases. The reinvested dividends are treated the same as if you had taken the dividends in cash, then used the cash to buy more stock. Bob Sandler
Now you've changed the story. Originally you said you sold all your shares. That changes the answers you got previously. Since you didn't specify otherwise at the time of sale, you sold the 250 shares you bought in 2001. Your basis will be sitting there on your purchase confirmation for those shares.
Yes.
What you paid for each one. This will correspond to the amount of dividend that purchased each lot.
You cannot do that. I think this will be clearer to you if you ignore the automatic reinvestment aspect and look at it as all cash transactions. They issue a dividend of $100. You pay income tax on that dividend. You buy shares worth $100. Your basis in those shares is $100 plust commissions.
Yeah, but some caution is advised on the "Original" 250 shares. You will need to be sure that's the case Instructions to your broker and their acknowledgment for example. You can't just "say" these shares are the original shares. Unless, of course, you held them in certificate form and surrendered the certificate to complete the sale.
The taxes you paid are taxes on the money you earned (dividends). The fact that you chose to reinvest them is irrelevant. The taxes would have been due regardless of what you did with the money and have no meaning and no bearing in your cost basis calculation. Your cost for these "umpteen" lots is your total of your "umpteen" dividends plus any transaction costs or fees they charged you. Because you were reinvesting dividends doesn't mean you didn't pay any fees, many stock reinvestment programs have fees associated with the reinvestment of dividend although they are generally small in dollar terms. Should be listed on your "umpteen" statements. Be mindful of short term gains/losses when you sell. The recent quarters of dividend reinvestments will be within the year when you sell and that means you'll need to separately report those, including their separate cost basis.
Yes, it is. With stocks (as opposed to mutual funds) you have to use the actual basis of the blocks you sold. Reinvested dividends only buy new blocks -- they don't affect the basis of existing blocks. A reinvested dividend is no different then the company sending the dividend to you in cash and you using that cash to buy more shares.
It's whatever the cost of the lot is. If a $32 dividend was reinvested and bought 0.666sh of Exxon, then the basis for that lot of 0.666sh is $32.
You absolutely CANNOT do that. Income taxes (state, local, or federal) paid on dividends do NOT affect basis at all.
That sounds right for the original 250 shares if that is all you sold and you didn't sell any of the reinvested dividends. Stocks you sell are on a first in, first out basis unless you specify otherwise. Since you sold in 2007, this will be reported on you 2007 taxes, next year, not 2006 taxes.
Each time the stock produced a dividend a certain number of shares (and fraction of share) were purchased. Your basis on _those_ particular shares for that particular date is what you paid for them, i.e., the amount of that dividend. The cost basis for _each_ reinvestment can be different and when sold could result in a gain or loss for those particular shares, therefore each reinvestment must be accounted for separately. Also, when you sell those shares, any that were purchased within the last year have to be treated as short term capital gain. Also, if you only sell _some_ of those shares, the first in, first out rule applies so you have to report gains or losses on the oldest shares. It gets complicated when there are a lot of reinvested dividends. I use Quicken to do all of the accounting for me. If each transaction, dividend payment, share price at time of dividend is entered into Quicken, then when stock is sold a report can be generated that shows the cost basis for each reinvestment that can be used to fill out the 1040 sched. D. It makes it much easier. I keep track of 20-40 (varies) stocks this way, some of which I have been reinvesting dividends since 1970. The tax you pay on dividends has no affect on your basis, it does not affect the basis anymore than if you took money out of your pocket to purchase the stock. The source of the funds to purchase and whether or not that source has been taxed makes no difference.
For instance, in March 2002 you got a $50 dividend. That was used to buy 1.1 shares. Your cost basis for those 1.1 shares is $50. (You also paid taxes on the dividend, which is irrelevant for this calculation.) Seth
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