How Stock Splits Affect Cost Basis
- Take the original investment amount ($10,000) and divide it by the new number of shares you hold (2,000 shares) to arrive at the new per-share cost basis ($10,000/2,000 = $5).
- Take your previous cost basis per share ($10) and divide it by the split factor of 2:1 ($10.00/2 = $5).
Does cost basis change when a stock splits?
In a stock split, the corporation issues additional shares to current shareholders, but your total basis doesn’t change. For example, you own 100 shares of stock in a corporation with a $15 per share basis for a total basis of $1,500.
How to calculate the basis for multiple stock splits?
Divide the amount you paid to acquire the shares by the number of shares you originally purchased. For example, if you paid $2,500 to purchase 100 shares, divide $2,500 by 100 to find your basis per share is $25. Step 2. Divide your per share basis by the number of new shares you received for each old share in the first stock split.
How to calculate your cost basis per share?
You can calculate your cost basis per share in two ways: Take the original investment amount ($10,000) and divide it by the new number of shares you hold (2,000 shares) to arrive at the new per-share cost basis ($10,000/2,000 = $5). Take your previous cost basis per share ($10) and divide it by the split factor of 2:1 ($10.00/2 = $5).
How does the cost basis of a stock change?
However, your cost basis per share does change, because you have more shares to divide among your original investment. Unless you sell all of your shares, you need to calculate the new cost basis per share, so your capital gains or loss may be accurately determined.
What are the tax consequences of a stock split?
Because there is no change in the value of your investment, there is no tax consequence at the time of the split. You must calculate the cost basis of your new shares in anticipation of selling them, and of having, at that time, a taxable gain or loss.
