Tax Basis Question after a Split or Merger?
Question:
If I sell 2 of the 4 shares, and I am using the FIFO method, what is the basis of these shares? I can see two possiblities:
1. Both shares originated from the first $5 share, and thus the basis is $5.
2. I sold the first two shares I purchased, which were from before the split. I purchased the two shares for $15, but when accounting for the split, the cost averages out to $7.50.
Would the answer be any different if I replaced "split" with "merger", in which case perhaps the 2 shares of stock X were replaced by 4 shares of stock Y? I suppose the real question is whether stock is ever newly created or if it is just "converted" from one form to another.
Answer:
wow your making this way to difficult...
Dont worry about the number of shares that is irrelavant. You sold the stock at lets say 10 dollars per stock thats a sale price of 20 dollars. Now you have to worry about the cost so you have 2 choices choose to sell the first purchase you made that had a cost of 5. Or, you chould choose to sell the second purchase at a cost of 10 dollars. DONT THINK ABOUT NUMBER OF SHARES.
Descr. of Property /Pdate /Sdate / Sprice /Cost/Gain or Loss
Company X / 04/04/03 /05/05/06/$20/ $5/ gain of $15
or
Descr. of Property /Pdate /Sdate / Sprice /Cost/Gain or Loss
Company X / 06/07/04 /05/05/06/$20/ $10/ gain of $10
your choice
Split, merger... doesnt matter its the cost you had from the purchase and the sale price if its split 100000 times the value is the same and so is the cost
It really doesn't matter. If you sell all your stock, your total cost basis is $15. You could use either method. But if you're using FIFO then you're selling your first share of stock ($5 cost that split ($2.50 each).
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