10.2 Capital Gains, Losses/Sale of Home: Stocks (Options, Splits, Traders)
How do I figure the cost basis of stock that has split, giving me
more of the same stock, so I can figure my capital gain (or loss) on the sale
of the stock?
When the old stock and the new stock are identical the basis of the old
shares must be allocated to the old and new shares. Thus, you generally divide
the adjusted basis of the old stock by the number of shares of old and new
stock. The result is your new basis per share of stock. If the old shares
were purchased in separate lots for differing amounts of money, the adjusted
basis of the old stock must be allocated between the old and new stock on
a lot by lot basis.
References:
When my stock split, the stock distributed to me was different than
my original shares. How do I figure the basis of the shares of the two different
kinds of stock?
Usually, the company issuing the new type of stock will send you a letter
explaining the tax consequences of the stock distribution, including how to
calculate the basis in the two different types of stock.
If you did not get such a letter or would like further assistance, call
IRS customer service at 1-800-829-1040 or refer to Publication 550, Investment
Income and Expense : Stock dividends under Basis of Investment Property .
References:
How do I calculate the cost basis of the shares that have split
and are later sold from my employee stock purchase plan?
You need to determine what your basis is in the company stock on the date
of the split. The new shares assume part of your basis in the company stock
on that date. You must divide the adjusted basis in the old stock by the number
of shares of old and new stock. The result is your basis for each share of
stock.
For example, if you owned two shares of company stock with a basis in one
at $30 and the other $45, and the company declares a three for one stock split,
you now have six shares of stock. Three of the shares will have a basis of
$10, and three will have a basis of $15.
Because this is an Employee Stock Option Plan, you may have to report some
or all of the gain on the sale of this stock as ordinary income (wages). For
more information about employee stock option plans, see Publication 525 , Taxable and Nontaxable Income.
References:
How will the IRS know my stock split?
The IRS is not notified of a stock split.
It is your responsibility to accurately report your income on your return
in the year you sell shares of stock and to fully disclose details of the
sale on Schedule D. Part of that disclosure is to state the per share basis
of the stock sold, which should take into account a stock split.
The broker of the sale reports the proceeds of the sale to the IRS on Form
1099-B The 1099-B also shows the recipient's identity, the payer's identity,
and the CUSIP Number that identifies the securities sold.
References:
Does the holding period for new shares I received as a result of
a stock split start on the purchase date of the original stock or on the date
of the stock split?
The holding period of the stock you received as a result of the stock split
begins on the same day as the holding period of the original stock.
References:
I purchased stock through an employee stock purchase plan at my
work which split three months later. Three months after that, I sold the stock
at a gain. How does the split affect how I report the stock sale on my tax
return?
With either of the two types of statutory employee stock option plans,
there is no income as a result of the granting of the option or the exercising
of the option (purchasing stock). These two types of plans are the employee
stock purchase plan and the incentive stock option plan. However, if you don't
hold the stock long enough to meet the holding period requirements, when the
stock is sold you may have to report compensation income (wages). The split
will affect the computation of capital gain and compensation income, if any.
For the stock purchased under an employee stock purchase plan to receive
favorable tax treatment, it must be held for at least two years after the
stock is granted and at least one year after the stock is transferred to you.
If the holding periods are not met, the lesser of the fair market value of
the stock on the grant date minus the option price or the fair market value
on the sale date minus the amount you paid for the stock is compensation income
(wages). To the extent that the gain is being taxed as wages on your return,
it becomes part of your adjusted basis in the stock sold. When determining
basis, the amount you paid for the stock is divided equally among the shares
received in the split.
For information on incentive stock option plans and nonstatutory stock
options, or more information on employee stock purchase plans, refer to Publication 525, Taxable and Nontaxable Income
References:
How do I calculate the sale of a stock that had a reverse split?
Reverse splits are where your number of shares in a company's stock decreases.
Your total basis remains the same; it is your per share basis that increases.
You must divide your basis in the old shares by the number of new shares.
For example, you own 4 shares of stock. Two of these shares have a basis of
$15; each of the other two have a basis of $20 each. There is now a one for
two reverse split. Now you have two shares. One has a basis of $30 the other
has a basis of $40. If your receive cash because of the sale of a fractional
share you have a capital gain or loss that is reported on Form 1040, Schedule D (PDF) , Capital Gains and Losses . Please see
Fractional Shares in Publication 550, Investment Income and Expenses ,
for further information on the sale of a fractional share.
References:
Do I need to pay taxes on that portion of stock I gained as a result
of a split?
No, you generally do not need to pay tax on the additional shares of stock
you received due to the stock split. You will need to adjust your per share
cost of the stock. Your overall cost basis has not changed, but your per share
cost has changed.
You will have to pay taxes if you have gain when you sell the stock. Gain
is the amount of the proceeds from the sale, minus sales commissions, that
exceeds the adjusted basis of the stock sold.
References:
10.3 Capital Gains, Losses/Sale of Home: Mutual Funds (Costs, Distributions, etc.)
How do I calculate the average cost method of a mutual fund if the
fund price splits?
If your mutual fund splits, or adjusts its price, it is treated like a
stock split. Your total basis doesn't change after the split, but since you
now own more shares without paying any more money, your per-share basis will
decrease. To calculate your per-share basis, divide the total cost that you
have invested in the fund (minus any shares previously sold) by the current
number of shares that you hold.
References:
What affect does a stock split for a stock in my mutual fund have
on my cost basis when I am using an average basis method?
If a stock within your mutual fund splits, it has no affect on your basis
because the shares you own are shares in the mutual fund, not in the stock
that split.
References:
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