cost basis


G

gmgenova

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
 
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R

Rich Carreiro

gmgenova said:
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?
Yes.

Do I do anything with the
dividends that were re-invested over the years?
They're part of basis too.
 
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B

Barry Margolin

gmgenova said:
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?
Yes.

Do I do anything with the
dividends that were re-invested over the years?
You add them to the cost basis.
 
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B

Benjamin Yazersky CPA

gmgenova said:
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?
Your basis is the purchase price + reinvested dividends

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
 
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P

Phil Marti

gmgenova said:
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?
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.
 
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M

MyVeryOwnSelf

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?
The cost basis is the total of all the amounts you mention:
the initial purchase, the additional purchases, and the
dividends that were re- invested.
 
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H

Han

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.
 
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B

Bob Sandler

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?
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
 
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P

Phil Marti

Han said:
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.
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.
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?
Yes.

Question 2:
Now I have umpteen lots of Exxon shares (each just a
fraction over 1 share). What is the cost basis here?
What you paid for each one. This will correspond to the
amount of dividend that purchased each lot.
How can I calculate into the basis the taxes I already paid on
these shares? Or can I not do that?
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.
 
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B

BeanTownSteve

Question 1: Is this correct?
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.
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?
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.
 
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R

Rich Carreiro

Han said:
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?
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.
Question 2:
Now I have umpteen lots of Exxon shares (each just a
fraction over 1 share). What is the cost basis here?
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.
How can I calculate into the basis the taxes I already paid on
these shares? Or can I not do that?
You absolutely CANNOT do that. Income taxes (state, local,
or federal) paid on dividends do NOT affect basis at all.
 
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E

Ernie Klein

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?
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.
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?
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.
 
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S

Seth Breidbart

Han said:
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?
Yes.

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?
The cost basis is the amount you paid.

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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B

Bob Sandler

Phil Marti said:
Now you've changed the story. Originally you said you sold
all your shares. That changes the answers you got
previously.
It's two different people posting different scenarios.
 
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H

Han

Thanks, Ernie, Rich and Phil.

Things are much clearer now!
 
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H

Han

Question 1: Is this correct?
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.
And thanks, Steve the Bostonian (?)
(We started in the US in Cambridge)
 
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