Several types of stock events can change the cost basis for your stock--stock splits and reverse stock splits are two of them. Stock splits don't change the price of the stock, but they will change the number of shares you own, which cuts the price by the number of shares exchanged. For instance, a 2 for 1 stock split occurs when a company replaces each share of outstanding stock with two shares. On the day the split occurs, the market price of each share is cut in two to reflect the split. The cost basis for each share also changes.
Determine the date on which you acquired your shares. Also note the cost per share at that time. If you acquired shares at different times you will need to do separate calculations for each purchase.
Add brokerage fees or commissions to the total purchase price. That is, if the cost of 100 shares was $500 and the commission was $20, then your initial cost basis was $5.20 per share.
Calculate a new cost basis if the stock splits. If the initial cost basis of the stock was $5.20 per share and it experiences a 2 for 1 stock split, then the cost basis for each share is also cut in half. The new cost basis after the split is $2.60 a share.
Calculate new cost basis for 4 for 1 stock split. This means that every share outstanding is now the equivalent of four shares, valued at 1/4 as much. The new cost basis iper share would be $1.30.
Tips & Warnings
- Note that neither the total value of your shares nor their total cost basis changes with a stock split--only the number of shares changes. Companies generally execute stock splits to reduce the nominal market price of their shares, making them--at least in theory--more attractive to certain buyers.
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