If you purchased the stock yourself, start
with your trade confirmation, which, of
course, you kept.
The total amount you paid (including
commissions and fees) divided by the
number of shares you purchased is
your initial cost basis per share.
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If you acquired it from a family member or related entity, go here → Related party rules.
Now look at your brokerage account activity statements since your purchase date
(you kept those, too, right?) and see if there have been any stock splits, exchanges,
mergers, or spinoffs. The corporate website for the company whose stock you own
often gives you valuable information about calculating your cost basis--look for the
link to "Investors" or "Investor Relations." Follow the instructions for applying the
allocation factor to your initial cost basis to arrive at your new cost basis per share
after the spinoff of a new company.
If you purchased your shares from a family member or related party entity, you also
have to apply the "related party" rules in determining the cost basis of your
investment.
Next, you need to look at your Form 1099 reports since the date of purchase and see
if any of the dividends paid by the company were classified as "return of principal"
payments for tax purposes. These amounts reduce your cost basis. Return of principal
payments are often seen in the cases of utility stocks, real estate investment trusts, or
corporations which are paying dividends in excess of their net income.
The last step is to rule out the applicability of the "wash sale" rule. If you bought the
stock again within thirty days before or after you sold it at a loss, you are not allowed
to claim the loss on the sale. The loss must be added to the purchase price of the
stock you bought the second time.
HELP! I DIDN"T SAVE MY TRADE CONFIRMATION!
If you don't have the original trade confirmation, a copy of the brokerage account
monthly statement showing the purchase activity will suffice. Alternately, a letter
from your brokerage firm confirming the date and cost is also sufficient. If you have
no idea where the trade confirmation is or what it cost, but can remember
approximately when the shares were purchased, you can go to the website
http://bigcharts.marketwatch.com/historical/ and obtain the historical cost for that day.
Take the average of the high and low trading prices for that day and use the result
as your cost per share.
If the website does not list your stock because it is no longer in existence due to
mergers, etc., you can try calling a public library information hotline of a large
library and ask the librarian to look up the stock price trading range for that particular
day in the archived newspaper files. You then have to roll the price forward by making
adjustments for all stock splits and corporate spinoffs, mergers, and reorganizations
since that date.
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