Determining the cost basis of your stocks is a multi-step process. It depends upon:
(1) How you acquired it. (2) Whether there have been corporate reorganizations (spinoffs, exchanges, or mergers) or corporate actions (stock splits or reverse splits.) (3) Whether dividends paid have included any "return of principal" payments. (4) Whether you sold it at a loss and bought it back within thirty days.
Let's get started! First answer this question, then come back here to find out about further adjustments you might have to make. How did you acquire the stock?
The next step is to chronologically account for any "return of principal" payments, stock splits, spinoffs of other stock, or other corporate actions or reorganizations. It is important in applying these adjustments to follow in the same order as the date it occurred.
The last step is to see if the following rules apply to you:
→ Wash sale rules if you sold the stock thirty days before or after you bought it.
→ Related party rules if you bought the stock from a family member or related party.
HELP! I HAVE NO IDEA WHERE I GOT THIS STOCK!
If you have absolutely no recollection of buying a stock and no idea where it came from, a good place to start looking is to ask your stockbroker for a copy of the corporate history of the stock. Your broker/dealer will have access to databases and reporting services that list all the corporate actions and reorganizations for a stock. You will most likely recognize the origin of a stock if you get this report. In many cases, a simple name change has occurred and you will recognize the former stock name as one that you purchased. For spinoffs from companies that you recognize as ones you purchased in the past, you would then need to go to the corporate website to find the cost allocation factors to apply to your cost for the original shares in order to arrive at your cost basis for the spinoff shares.
CASH TO BOOT:
Sometimes a corporation goes through a merger where you receive stock in a new company plus some cash. This is called "cash to boot." For a detailed explanation of what to do in this situation, go toCASH TO BOOT.
