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hej-esd
New Member

How do I figure cost basis with 35 yr old stock in a dividend reinvestment plan?

 I recently sold 750 shares of stock.  Should I use the figures represented on the date at which our reinvested dividends reached 750 to figure cost basis?  (FIFO)  Or the current values? records for each and every quarter since inception (1981)

I have every piece of documentation.

1 Best answer

Accepted Solutions
MichaelL1
Level 15

How do I figure cost basis with 35 yr old stock in a dividend reinvestment plan?

Depending on the dollar amount, I would want to have 1) long term gain, and 2) I like to keep things somewhat simple, so i would also compute the basis in the remaining share now, especially if you plan to sell soon.

IRS allows FIFO or specific identification.  

So you have a lot of leeway here.  Just document well whatever you use.

"What gets tricky is if you decide to sell only a portion of your shares. In that case, you'll have to choose which method to use in selecting the exact shares that you sell. Using a method like first in, first out will generally get you long-term treatment for any gains or losses, but if the stock has risen over time, that method will sometimes lead to larger taxable gains than others. By contrast, specific identification can allow you to choose shares with smaller gains, but you might not have held those shares long enough to get preferential long-term treatment.

The simplest way to keep track of your cost basis is to note the amount of dividends on which you're taxed from year to year. By adding those amounts to what you originally paid for shares, you'll accurately reflect your total cost basis for the position. Some DRIPs will even keep track of your cost basis information for you."

Source: https://www.fool.com/knowledge-center/how-to-calculate-cost-basis-in-dividend-reinvestme.aspx

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1 Reply
MichaelL1
Level 15

How do I figure cost basis with 35 yr old stock in a dividend reinvestment plan?

Depending on the dollar amount, I would want to have 1) long term gain, and 2) I like to keep things somewhat simple, so i would also compute the basis in the remaining share now, especially if you plan to sell soon.

IRS allows FIFO or specific identification.  

So you have a lot of leeway here.  Just document well whatever you use.

"What gets tricky is if you decide to sell only a portion of your shares. In that case, you'll have to choose which method to use in selecting the exact shares that you sell. Using a method like first in, first out will generally get you long-term treatment for any gains or losses, but if the stock has risen over time, that method will sometimes lead to larger taxable gains than others. By contrast, specific identification can allow you to choose shares with smaller gains, but you might not have held those shares long enough to get preferential long-term treatment.

The simplest way to keep track of your cost basis is to note the amount of dividends on which you're taxed from year to year. By adding those amounts to what you originally paid for shares, you'll accurately reflect your total cost basis for the position. Some DRIPs will even keep track of your cost basis information for you."

Source: https://www.fool.com/knowledge-center/how-to-calculate-cost-basis-in-dividend-reinvestme.aspx

View solution in original post

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