What is the base

[mwltatg]

I have a dividends reinvested stock that I have held for about 30 years. I plan to sell it in the near future. Here comes the problem, I'm not sure what the base I should use for the tax filing. Please advise.

[KochuK]

Hi mwltatg,

Here is what IRS says:

"Keep records of the amount of the reinvested dividends, the number of additional shares purchased and the purchase dates. You'll need this information to establish your basis when you sell the shares."

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/stocks-options-splits-traders/stocks-...

Understand the difficulty compiling 30 years of data. Please see if the administrator/custodian of the Dividend Reinvestment Plan can provide the cost basis.

Hope this helps.

[NCperson]

@mwltatg - the basis is the cost that you originally paid for the stock plus the dollar value of the reinvested dividends at the time you inreinvested them.  for most all publically traded stocks you should be able to reconstruct the reinvested dividends cost basis (check Yahoo Finance). 

[mwltatg]

Thanks for the information. However, this is not what I was hoping for. It's an impossible task to list every reinvested share's cost for tax filing. It's amounted to at least 360 (30 x 12) transactions for just this stock.

[NCperson]

@mwltatg - then assume the cost basis is zero for the reinvestments.....

[VolvoGirl]

Plus when you sell you will need to enter it as  2 sales.  One for Long Term (shares 1 year or more) and one for Short Term (less than 1 year).  So you can probably figure the reinvested shares for the year before you sell it.  Are you planning to sell it all?  You really should try to get the reinvested dividends.  Over 30 years they will increase your cost a lot and save you on taxes.    

[Opus 17]

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@mwltatg wrote:

Thanks for the information. However, this is not what I was hoping for. It's an impossible task to list every reinvested share's cost for tax filing. It's amounted to at least 360 (30 x 12) transactions for just this stock.

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Remember that only dividends that you pay income tax on will increase the cost basis if you use them to buy more shares.  If you were in a dividend reinvestment plan where you did not pay income tax on the dividends, then they don't increase your basis. 

If you did pay income tax, then you can use the 1099-DIV forms you received over the years to calculate your basis, as long as all the dividends were reinvested.  In other words, if your basis was $10,000, and you received $500 in dividends reported on a 1099-DIV as taxable income, and you know it was reinvested, you can assume your new basis is $10,500, even though you don't know the basis of any specific share.

Do you want to cash out entirely or only sell a portion?  It would be tricky to calculate if you were trying to do FIFO or LIFO method.  However, you can still get the taxable dividend from your 1099-DIV and the average stock price for the year.

Bottom line, if you are audited, the IRS does not have to allow any basis you can't prove.

[tagteam]

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@Opus 17 wrote:

If you were in a dividend reinvestment plan where you did not pay income tax on the dividends, then they don't increase your basis.

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When would this ever be the case, with respect to re-invested cash dividends, outside of a tax-advantaged account, such as an IRA?