Stock Split

A forum question posted by AskTaxGuru.com Junior Member WHANSMA:

If bought 50 shares of XYZ stock at $10.00 per share back in 2005. It splits 2 for 1 when it gets to $50.00 per share. I now have 100 shares worth $25.00 per share. Since the stock is not doing well in 2010 I sell 50 shares to try to cut some of my loss. I sell at $5.00 per share. I know this is entered as Long Term on Schedule D but am confused as to what the cost basis total should be? (Column E).


Thanks


Wayne

Answered by Moderator Wnhough:

“I know this is entered as Long Term on Schedule D but am confused as to what the cost basis total should be? (Column E).”----> In general, regardless of the type of stock split, it usually affects the stock basis price at which you purchased the stock. So, failure to take this issue into account when computing your capital gains and losses can result in substantial under reporting of income on your 1040 to the IRS. You must use the post-split basis as you only sell part of your basis. As you bought 50 shares of stock at $10 per share and it splits two for one, then you own 100 shares with a basis of $25 per share, 100*$25=$2,500=$50*50. If you sell 50 shares at $5 per share, then your basis will be $1250;50*$25, plus commission that you paid when buying the stock, and your sale price will be $250, $5*50, minus commission. So, your LTCL is $1,000; $250-$1,250=($1,000)

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