Short- and Long-Term from DRIP

M

Michael F. Stemper 4 years ago

I was in a firm's dividend reinvestment Program (DRIP) for many years, leading to a total of 63 purchases over fifteen years.

Last year, they executed a reverse split, which left me with a non-integer number of shares. They sold off the fractional share, sending me a check for the proceeds. This happened just ten months after their last dividend payment, so it included (as far as I can tell) both short- and long-term losses.

How do I apportion the proceeds between the two? Do I really have to document every one of the 63 purchases in order to show the basis for that fractional share?

Taking matters further, I looked at their mid-term plans and decided to get out while I could salvage something. However, by the time that I made this decision, the DRIP had generated another fractional share. So when I sold out, the whole number of shares was sold as one transaction, and the fractional share was sold separately. Due to associated fees, all that I got for the fractional share was a statement -- there wasn't any money left for me.

Obviously, the sale of this new fractional share was all short-term. But, for the other shares, I have the same issues as for the sale of the first fractional share: how do I allocate short- and long-term? How do I document the basis for each?

Thanks,

Vote

J

John Levine 4 years ago

You can use LIFO, FIFO, lowest cost, or specific lot cost basis. It sounds like you think you have to do average cost, which I don't think is even permitted for stocks, only mutual funds.

LIFO usually gives you the lowest tax bill in the common situation that the price of the stock generally appreciated over the years. It's also pretty simple, just match up the fractional share with enough DRIPs to cover it. Unless the share prices are very high I doubt you'll need more than one or two dividends. Or if you want to make it really easy, do it FIFO and use the price you paid for your original shares.

Vote

I

ira smilovitz 4 years ago

You can use average cost basis for the "covered" shares in the DRIP.. (that is, those acquired in 2012 and later). Note that average cost basis for common stock is only available when the shares are part of a DRIP program, including those programs run by a brokerage.

Ira Smilovitz, EA Leonia, NJ

Vote

T

Tempuser 4 years ago

[SNIP]

Well Ira, I'm going to need a citation as I am not aware that average cost is available for any shares of stock.

Vote

I

ira smilovitz 4 years ago

I might have to look for the authoritative citation, but look at IRS Pub. 550, page 44 or any broker's instructions for cost basis assignment.

Ira Smilovitz, EA Leonia, NJ

Vote

I

ira smilovitz 4 years ago

It appears that Section 403 of the Energy Improvement and Extension Act of 2008, Div. B of Pub. L. No. 110-343, 122 Stat. 3765 is the relevant source citation.

Ira Smilovitz, EA Leonia, NJ

Vote

I

ira smilovitz 4 years ago

The relevant authority is Section 403 of the Energy Improvement and Extension Act of 2008, Div. B of Pub. L. No. 110-343, 122 Stat. 3765.

Ira Smilovitz, EA Leonia, NJ

Vote

T

Tempuser 4 years ago

Thanks. IRC Sec. 1012(d) has the changes.

Vote

M

Michael F. Stemper 4 years ago

Okay, that makes things simpler for that part of a share.

Two followup questions:

Do I need to list each of the 63 purchases when I fill out the 8949? Is it possible to say something like "July, 2005 through October, 2020", "Total of 320 shares", "Total price $7500"?

How do I document the reverse split? In other words, in January of 2017, I bought 2.368 shares for $71.86. But, post-split, that was only 0.296 shares.

Vote

I

ira smilovitz 4 years ago

You can total all of the purchases that comprise a single sell transaction and use "Various" for the date purchased. (Remember to separate short term from long term.) You don't document the reverse split, per se. You apply the split ratio(s) to each purchase and total the post-split amounts.

Ira Smilovitz, EA Leonia, NJ

Vote

M

Michael F. Stemper 4 years ago

Thank you for the clear and concise answer.

That the answer turns out to be good news is a bonus.

Vote

Short- and Long-Term from DRIP

Join the Discussion

Didn't find your answer?