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Frequently Asked Tax Questions

Capital Gains, Losses, Sale of Home - Stocks (Options, Splits, Traders)

  1. How do I figure the cost basis of stock that has split, giving me more of the same stock, so I can figure my capital gain (or loss) on the sale of the stock?
  2. How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?
  3. How are reinvested dividends reported on my tax return?
  4. How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?
  5. How do I report participation in a § 423 employee stock purchase plan on my tax return?
  6. I purchased stock from my employer under a § 423 employee stock purchase plan. Now I have received a Form 1099-B from selling it. How do I report this?
  7. Should I advise the IRS why amounts reported on Form 1099-B do not agree with my Form 8949 for proceeds from short sales of stock not closed by the end of year?
  8. Do I need to pay taxes on the additional stock that I received as the result of a stock split?

Rev. date: 04/09/2013

How do I figure the cost basis of stock that has split, giving me more of the same stock, so I can figure my capital gain (or loss) on the sale of the stock?

A stock split occurs when a company creates additional shares, thus reducing the price per share. If you own stock that has split and now own additional shares, you must adjust your basis per share or per the lots of the stock you own.
If the old shares of stock and the new shares are uniform and identical:
If the old shares were purchased in separate lots for differing amounts of money (a different basis per lot):

Rev. date: 04/09/2013

How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?

The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees. If you acquired these securities other than by purchase, your basis is usually determined by fair market value or the previous owner’s adjusted basis. When selling securities, you should be able to identify the specific shares to be sold.
If you can identify which shares of stock you sold, your basis is:
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:
You are required to keep and maintain records that identify basis of all capital assets.  If you do not have adequate records to document the basis, the IRS requires you to treat your basis as zero.

Rev. date: 04/09/2013

How are reinvested dividends reported on my tax return?

Dividends that are reinvested on your behalf purchase additional shares or fractions of shares for you.
Note:  Keep records of the 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: 04/09/2013

How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?

An investor must include in income the amount received as a dividend.  The dividend reinvestment plan then uses the amount received as a dividend to purchase additional shares or fractional shares of the same stock, usually at the fair market value of the stock on the day reinvested.  The basis of stock that you received through a dividend reinvestment plan:
The first-in first-out rule means:

Rev. date: 12/21/2012

How do I report participation in a § 423 employee stock purchase plan on my tax return?

A § 423 employee stock purchase plan is a type of statutory stock option plan. If you participated in an employee stock purchase plan:
The holding period requirement is satisfied if:
You should receive a Form 3922 (PDF), Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), from your employer when the employer has recorded the first transfer of legal title of stock you acquired pursuant to your exercise of the option. This form will assist you with the tracking of your holding period and your cost basis for the stock purchased through your qualifying plan.

Rev. date: 12/21/2012

I purchased stock from my employer under a § 423 employee stock purchase plan. Now I have received a Form 1099-B from selling it. How do I report this?

A § 423 employee stock option plan. You have taxable income or a deductible loss when you sell the stock. Your income or loss is the difference between the amount you paid for the stock (the option price) and the amount you receive when you sell it.  You generally treat this amount as capital gains or losses; however, you may also have ordinary income to report.
You must account for and report this sale on your taxes. You have indicated that you have a Form 1099-B (PDF); you must report all 1099-B transactions on Schedule D (Form 1040) (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets. This is true even if there is no net capital gain to be taxed.
You must first determine if you meet the holding period. The holding period requirement is satisfied if you do not sell the stock until the end of the later of:
If the holding period requirement is satisfied:
If the holding period requirement is not satisfied:
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.

You should receive a Form 3922 (PDF), Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), from your employer when the employer has recorded the first transfer of legal title of stock you acquired pursuant to your exercise of the option . This form will assist you with the tracking of your holding period and your cost basis for the stock purchased through your qualifying plan.

Rev. date: 10/29/2013

Should I advise the IRS why amounts reported on Form 1099-B do not agree with my Form 8949 for proceeds from short sales of stock not closed by the end of year?

For most taxpayers, Form 1099-B (PDF) should match Form 8949 (PDF), Sales and Other Dispositions of Capital Assets.  You must declare any difference on your return.  
If you entered into a short sale on or after January 1, 2011, you will receive a 1099-B for the year in which the short sale closed.  Both proceeds and basis information related to the short sale will be reported at the same time, so amounts reported on Form 1099-B should agree with the amounts you report on your Form 8949.
If you entered into a short sale before January 1, 2011, you should have received a Form 1099-B for the year the short sale was opened reporting gross proceeds from the short sale.  When the short sale is closed in a later year, use the information from the pre-2011 Form 1099-B to determine the amount of gross proceeds from the short sale when completing your Form 8949 for the year the short sale is closed.  For a short sale entered into before January 1, 2011, your broker is permitted, but not required, to send you a Form 1099-B for the year the short sale is closed to provide you with information about the short sale.  
There may be other times when your broker reports a basis that is inconsistent with your records. The instructions for Form 8949 advise you on how to make this basis adjustment to report your taxes correctly. For more specific rules, refer to Publication 550, Investment Income and Expenses and the instructions to the Form 8949 found in the Instructions for Schedule D (PDF), Capital Gains and Losses.

Rev. date: 07/01/2013

Do I need to pay taxes on the additional stock that I received as the result of a stock split?

No.  In a stock split, a corporation issues additional shares to current shareholders, but your total basis does not change.  Following a stock split, you must reallocate your basis between the original shares and the shares newly acquired in the stock split.