Frequently Asked Tax Questions
Capital Gains, Losses/Sale of Home - Stocks (Options, Splits,
Traders)
Rev. date: 1/1/2010If the old stock and the new stock are identical:
If the old shares were purchased in separate lots for differing
amounts of money:
Rev. date: 1/1/2010If you
can
identify which shares of stock you sold, your basis is:
-
What you paid for the shares sold plus any costs of purchase.
-
The total of all the acquisition costs of all the shares sold
if you sell a block of the same kind of stock and you report all the shares sold
at the same time as one sale.
If you
cannot adequately identify
the shares you sold and you bought the shares at various times for different
prices, the basis of the stock sold is:
Rev. date: 1/14/2010Reinvested dividends:
-
-
Are combined with your ordinary dividends. If the total exceeds
a specific dollar amount set by law, you must file either
Form 1040 Schedule B (PDF) and report the dividends on that form.
-
Are not actually shown as reinvested dividends on your return;
they are reported as dividends.
-
Occur when corporations allow investors to choose to use their
dividends to buy more shares of stock in the corporation instead of receiving
the dividends in cash.
-
Must be reported at the fair market value on the dividend
payment date on your tax return.
NOTE: Keep records of the dollar amount of the reinvested dividends, the number
of additional shares purchased, and the purchase dates. You will need this
information to establish your basis when you sell the shares.
Rev. date: 1/1/2010The basis of stock that you received through a dividend reinvestment
plan:
-
Is the cost of the shares plus any adjustments, such as sales
commissions.
-
If you have not kept detailed records of your dividend reinvestments,
you may reconstruct those records with the help of public records from
sources such as the media, your broker, or the company that issued the
dividends.
-
The basis must be determined by using the first-in first-out
rule if you cannot specifically identify which shares were sold.
The first-in first-out rule means:
-
That you deem that you sold the oldest shares first, then
the next oldest, until you have accounted for the number of shares sold.
-
You need to have kept adequate documentation of all your purchases,
including those that were made through the dividend reinvestment plan in order
to establish the basis of these shares.
-
You may not use an average cost basis. If certain conditions
are satisfied, an average cost basis may be used for mutual fund shares.
Rev. date: 1/1/2011If you participated in an employee stock purchase plan:
-
You do not include any amount in your gross income as a result
of the grant or exercise of your option to purchase stock.
-
You may have to report compensation (Form 1040, Line 7) and
capital gain or loss (Schedule D, Form 1040) when you sell the stock.
-
The amount of compensation and capital gain or loss depends
on whether you satisfy the holding period requirement.
The holding period requirement is satisfied if:
Rev. date: 2/15/2011The holding period requirement is satisfied if:
If the special holding period requirement:
-
Is satisfied, the sale of stock is treated generally as giving
rise to capital gain or loss. You may have compensation income if the option
price was below the stock's fair market value at the time the option was
granted; or
-
Is not satisfied, the compensation income that you should
report in the year of the sale is the amount by which the fair market value of
the stock at the time of purchase (or vesting, if later) exceeds the exercise
price. Any additional gain or loss is treated as capital gain or loss.
If the holding period requirement is satisfied but the option
exercise price is below the fair market value of the stock at the time the
option was granted:
If you do not satisfy the holding period requirement and sell the stock for less
than the amount you paid for it, your loss is a capital loss, but
you still may have ordinary income.
Rev. date: 1/1/2011If you are able to defer the reporting of gain or loss until
the year the short sale closes, there are certain notations you can make on you
Form 1040, Schedule D (PDF),
Capital Gains and Losses that will allow you to reconcile your
Form 1099-B (PDF) to your
Form 1040, Schedule D
(PDF) and still not recognize the gain or loss from the short sale. You will
also need to attach a statement explaining the details of your short sale and
that it was not closed as of the end of the year. Include your name as it
appears on the return and your social security number.
For more specific rules refer to
Publication 550,
Investment Income and Expenses.
Rev. date: 1/1/2011-
No, a stock split does not increase your wealth; you merely
receive more stock certificates evidencing the same ownership interest in the
company that issued the stock.
-
Your overall cost basis is not changed as a result of a stock
split, but your per share basis is changed.
-
You will need to adjust your basis per share of the stock.
If you realize a gain when you sell the stock, you will have to include the gain
in income. Gain is the amount by which the proceeds from the sale, minus sales
commissions, exceed the adjusted basis of the stock sold.
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