How to Figure the Basis on a Stock Split
Basis, or cost basis, is the term for your total expenditures when you make an investment. Cost basis is used in the process of figuring capital gains when you file your taxes. For stocks, cost basis includes the purchase price of the shares plus any other transaction costs. Your cost basis won't change if a stock splits. However, it's more complicated to figure basis on a stock split. The important thing is not to multiply the original share price by the new number of shares. This will overstate the cost basis and understate capital gains on your tax return.
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Instructions
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Learn how a stock split affects the value of your investment. When the stock split occurs, the price per share is reduced in proportion to the number of shares added. For example, if you own 500 shares at $30/share (total: $15,000) and the stock splits 2 for 1, you then have 1,000 shares at a price of $15/share. The total value of your investment is still $15,000. The value (and therefore the cost basis) does not change.
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Convert the per share purchase price into a price adjusted for the stock split. Divide the total purchase price of the stock by the new number of shares. For example, if you bought 500 shares at $20/share (total: $10,000) and now have 1,000 shares after a 2-for-1 split, divide $10,000 by 1,000 shares to adjust the per share purchase price to $10/share. Note that the total purchase price does not change.
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Add all transaction costs for both the purchase and the sale of the shares to the total purchase price. This is your basis for figuring capital gains (or losses) for tax purposes.
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Calculate your capital gain/loss and taxes due using IRS Schedule D (Capital Gains and Losses). Your cost basis goes in Column E. Attach the completed Schedule D along with a copy of the 1099-B form your broker sends you documenting the stock sale.
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