How to Figure the Average Cost Basis for Stocks

Calculating stock basis

Every year Americans have to pay taxes on income. This includes investment income. To calculate the amount you've lost or gained on investments you will need to compute the average original value of the asset. For stocks, this means finding the average original value of the stock after adjustments for stock splits, dividends and capital distributions.

Instructions

1. Determine the original value of your investment. Let's say you invested $1,000 in a stock which purchased 100 shares. This makes the shares worth $10 ($1,000/100). $10 is your current cost basis.

2. Determine the current market value of the stock. After a year your investment value has gone up to $1,500, which means you've made a gain of $500 on your investment.

3. Calculate the new cost basis to determine the tax amount for which you are liable. The new basis on the shares is the current value divided by the number of shares owned. Continuing our example, the new account value is $1,500/100 or $15. This is you new cost basis and the dollar amount you should use to calculate your tax liability.

4. Calculate the cost basis after a 2:1 (2 for 1) stock split. Take the original investment value ($1,000) and divide by the new amount of shares you hold (2 x 100). The equation is $1,000 / 200 or $5. This is your new cost basis.

References

• Investopedia: Investopedia FAQs Icon How do I figure out my cost basis on a stock investment?