Cost basis

[gkrall]

My broker used the adjusted stock price to calculate cost basis of stock purchased through the dividend reinvestment program and this was reported to the IRS.  My quarterly statements show the actual stock price.  Since I sold the stock at a loss (based on the quarterly statement stock price) but the adjusted stock price is lower creating a gain instead of a loss I will be paying more tax if I used the cost basis shown in the broker statement.  The stock I sold goes back more than 10 years and I don't really want to fix every quarterly reinvestment price, but the capital gain difference I estimate is substantial. My "broker's" response (Computershare) is to suggest I get the help of a Tax advisor to understand cost basis instead of explaining why they used adjusted stock price. Any suggestions?

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[JohnB5677 · Accepted solution]

You do not have to go back and fix anything your broker gave you including the quarterly statements.

Post the 1099-B exactly as your broker sent it to you.  This will match what the IRS has.

To enter your stock transactions:

1. Start at Federal
2. Wages and Income
3. Scroll to Investments & Savings
4. Select Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B) [Start or Revisit]
5. If you already have an entry, select the appropriate broker or add another account.
6. Select your broker or follow the interview.
7. As you enter the dates and proceeds, there is a check box for The cost basis is incorrect or missing on my 1099‑B
8. Follow the interview to use this option to correct any errors on a cost basis.

[fanfare]

My broker used the adjusted stock price"

what is meant by "adjusted stock price" ?

you can't manually change your basis just because you don't like the tax consequences that cost-basis produces.

@gkrall 

[gkrall]

Thanks for your detailed reply.  I need to clarify what I mean when I say "fix the quarterly statements". The quarterly statements have the dividend reinvestment details such as the total proceeds, number of shares purchased, stock price at time of purchase.  This is the data I want to use to calculate the cost basis.  The company (AT&T) spun-off Warner Brothers Discovery after my sale of stock.  My broker sent me an adjusted basis based on the adjusted stock price.  I recently learned that most historical stock prices are adjusted for corporate actions such as stock splits and spin-offs.  This is done so the stock price does not show and abrupt change in price that would impact stock price trends.  I am assuming that I should use the actual stock price at the time of the dividend reinvestment which shows on my quarterly statements.  So this requires that I calculate the cost basis and gain from my quarterly statements not the adjusted stock price summary of gains.

[fanfare · Accepted solution]

If you sold before the Warner shares appeared in your account, then you are right. Your basis had not been adjusted yet.

reinvested dividends add to your basis.

add all the reinvested amounts together to get the basis of reinvested dividends.

add the cost of the initial shares and any other shares you bought subsequently.

enter "Various" for date acquired and the total cost of the shares you sold, enter the proceeds.

all the long term gain or (loss) can be put on one line of Form 8949 Page 2.

dividends received within one year before you sold must be treated separately as Short Term shares.

see instructions for Form 8949 for how to use adjustment code "B" and whether you need an amount in column (g).

@gkrall 

[fanfare]

did you own AT&T common stock (T) as of the close of business on April 5, 2022, the record date for distribution of shares of SpinCo as part of the WarnerMedia/Discovery transaction? If so, you received an ownership interest in Warner Bros. Discovery (WBD) following the distribution.

If you sold any AT&T share after this date, your basis is adjusted.

AT&T provides some calculators and worksheets for you.

@gkrall 

[gkrall]

Thanks for your reply. Actually I did own common stock at COB on April 5th. I agree that is what much of the documentation on the AT&T website stated.  When I sold my shares on the morning of April 8th and did not get the shares of Warner Bros, I checked more information and found in one obscure website that the actual date of the spin off was April 8th COB.  I assume having sold my shares in the AM (according to the trade information I received), I no longer owned the shares as of COB therefore I didn't get the Warner Bros shares.  The trade did occur at the pre spin off price so I was not cheated out of that aspect of the sale.  I tried to discuss this with Computershare but they were completely unwilling to help.  So, I am planning to correct the 1099 -B information as described by JohnB early in this thread. 

[fanfare]

" I didn't get the Warner Bros shares"

Did you wake up the morning of April 11 with WBD shares in your account?

You should have.

@gkrall 

[gkrall]

I did receive Warner Bros shares for the T shares I owned but didn't sell.  For the shares I did sell on April 8, they sold at the pre- spinoff price and I didn't receive any Warner Bros shares for those shares.  

[ErnieS0]

You still may have to adjust your cost basis if you sold your AT&T shares prior to the spinoff of Warner Brothers Discovery. A&T had several other transactions 

See How to calculate your cost basis and access cost basis worksheets.

[gkrall]

Thanks for your reply. Yes, I agree but for the covered shares whose basis is reported to IRS, there were no corporate actions in the timeframe I owned them (since 2010). These covered shares were the result of dividend reinvestment, so the basis is well documented.  It is those shares that were adjusted for the spin off (because of the confusion with the spin off date, I assume) and should not have been.  The other shares are listed as non-covered and are a nightmare to figure out the basis.  They were gifted at different times and include original shares and 30 years of quarterly dividend reinvested shares.  Some of the shares (AT&T Corp) date back to the time prior to the 1984 divestiture that created all the baby bells including AT&T Inc, one of which (SWB), remerged with AT&T and SWB took the AT&T Inc name. So today's AT&T Inc shares are a combination of historical AT&T Inc and SWB shares.   I used the AT&T cost basis calculator to make a best guess at the cost basis for those gifted shares.