How to Calculate Gain or Loss on Stock Splits
When the price of a stock rises, the company may declare a stock split to make its shares more affordable on the retail market. For instance, a stock trading at $120 per share might declare a 2 for 1 stock split to lower the cost to $60 per share. The stock split itself is not a taxable event, but it does impact the cost basis on a per share basis.
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Instructions
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Find the original purchase confirmation you received when you purchased the stock. Note the price you paid for the stock and how many shares you bought.
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Review any subsequent purchases you made, and pull copies of those purchase confirmations as well. Note the amount you paid for those shares and how many shares you purchased.
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Check the information you received about the stock split to determine how many more shares you will have after the stock split takes place. A typical stock split is 2 for 1, which gives you twice as many shares as you had originally purchased.
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Multiply the number of shares you own by the split factor. For instance, if you purchased 600 shares of stock originally and the firm declares a 2 for 1 split, you now own 1200 shares instead. The price of the stock is halved on the day of the stock split, so the total of your original investment is not impacted.
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Divide the original purchase price of the stock you bought by the split factor. For instance, if you bought 600 shares of stock at $30 per share and the stock splits 2 for 1, you now own 1200 shares with a cost basis of $15 per share. If you purchased stock at different times and different prices, you need to adjust the cost basis for each lot based on the original share price. For instance, if you bought 100 shares at $20 per share and 200 shares at $26 per share, you now on 200 shares with a cost basis of $10 per share and 400 shares with a cost basis of $13 per share.
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Review the sales confirmation when you sell the stock. No capital gains tax is due until you actually sell your shares. Multiply your adjusted cost per share by the number of shares you sold, then add the amount of your brokerage commission. Subtract that original cost basis from the proceeds of the sale to get the amount of your capital gain or loss.
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