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Posted by Phil Marti on February 13, 2007, 5:02 pm
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> I'm still confused.
> I bought 250 shares of Exxon in Oct 2001. Reinvested all
> dividends and paid tax on them. I just sold the original
> 250 shares earlier this year (2007), and realize I have to
> pay tax on the cap gain.
Now you've changed the story. Originally you said you sold
all your shares. That changes the answers you got
previously.
Since you didn't specify otherwise at the time of sale, you
sold the 250 shares you bought in 2001. Your basis will be
sitting there on your purchase confirmation for those
shares.
> I have always thought that the cap
> gain is based on the basis (original purchase cost,
> including commission) and the selling price (net, taking the
> commission into account).
>
> Question 1: Is this correct?
Yes.
> Question 2:
> Now I have umpteen lots of Exxon shares (each just a
> fraction over 1 share). What is the cost basis here?
What you paid for each one. This will correspond to the
amount of dividend that purchased each lot.
> How can I calculate into the basis the taxes I already paid on
> these shares? Or can I not do that?
You cannot do that. I think this will be clearer to you if
you ignore the automatic reinvestment aspect and look at it
as all cash transactions.
They issue a dividend of $100. You pay income tax on that
dividend.
You buy shares worth $100. Your basis in those shares is
$100 plust commissions.
--
Phil Marti
Clarksburg, MD
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Posted by Bob Sandler on February 13, 2007, 10:48 pm
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>> I bought some shares of a stock through Sharebuilder back in
>> 2002. At the initial purchase, I bought $6.00 worth of
>> shares. Over the years, I have bought more shares of this
>> stock. Also over the years, my dividends have been
>> re-invested back into the stock. I sold all shares of this
>> stock in 2006.
>> I'm still confused.
>> I bought 250 shares of Exxon in Oct 2001. Reinvested all
>> dividends and paid tax on them. I just sold the original
>> 250 shares earlier this year (2007), and realize I have to
>> pay tax on the cap gain.
> Now you've changed the story. Originally you said you sold
> all your shares. That changes the answers you got
> previously.
It's two different people posting different scenarios.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Rich Carreiro on February 13, 2007, 5:02 pm
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> I bought 250 shares of Exxon in Oct 2001. Reinvested all
> dividends and paid tax on them. I just sold the original
> 250 shares earlier this year (2007), and realize I have to
> pay tax on the cap gain. I have always thought that the cap
> gain is based on the basis (original purchase cost,
> including commission) and the selling price (net, taking the
> commission into account).
>
> Question 1: Is this correct?
Yes, it is. With stocks (as opposed to mutual funds) you
have to use the actual basis of the blocks you sold.
Reinvested dividends only buy new blocks -- they don't
affect the basis of existing blocks. A reinvested dividend
is no different then the company sending the dividend to you
in cash and you using that cash to buy more shares.
> Question 2:
> Now I have umpteen lots of Exxon shares (each just a
> fraction over 1 share). What is the cost basis here?
It's whatever the cost of the lot is. If a $32 dividend was
reinvested and bought 0.666sh of Exxon, then the basis for
that lot of 0.666sh is $32.
> How can I calculate into the basis the taxes I already paid on
> these shares? Or can I not do that?
You absolutely CANNOT do that. Income taxes (state, local,
or federal) paid on dividends do NOT affect basis at all.
--
Rich Carreiro rlcarr@animato.arlington.ma.us
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Ernie Klein on February 13, 2007, 5:02 pm
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>> If you acquired any of the shares within a year before the
>> sale, you have to separate those as short-term.
> I'm still confused.
> I bought 250 shares of Exxon in Oct 2001. Reinvested all
> dividends and paid tax on them. I just sold the original
> 250 shares earlier this year (2007), and realize I have to
> pay tax on the cap gain. I have always thought that the cap
> gain is based on the basis (original purchase cost,
> including commission) and the selling price (net, taking the
> commission into account).
>
> Question 1: Is this correct?
That sounds right for the original 250 shares if that is all
you sold and you didn't sell any of the reinvested
dividends. Stocks you sell are on a first in, first out
basis unless you specify otherwise.
Since you sold in 2007, this will be reported on you 2007
taxes, next year, not 2006 taxes.
> Question 2:
> Now I have umpteen lots of Exxon shares (each just a
> fraction over 1 share). What is the cost basis here? How
> can I calculate into the basis the taxes I already paid on
> these shares? Or can I not do that?
Each time the stock produced a dividend a certain number of
shares (and fraction of share) were purchased. Your basis
on _those_ particular shares for that particular date is
what you paid for them, i.e., the amount of that dividend.
The cost basis for _each_ reinvestment can be different and
when sold could result in a gain or loss for those
particular shares, therefore each reinvestment must be
accounted for separately.
Also, when you sell those shares, any that were purchased
within the last year have to be treated as short term
capital gain. Also, if you only sell _some_ of those
shares, the first in, first out rule applies so you have to
report gains or losses on the oldest shares. It gets
complicated when there are a lot of reinvested dividends.
I use Quicken to do all of the accounting for me. If each
transaction, dividend payment, share price at time of
dividend is entered into Quicken, then when stock is sold a
report can be generated that shows the cost basis for each
reinvestment that can be used to fill out the 1040 sched. D.
It makes it much easier. I keep track of 20-40 (varies)
stocks this way, some of which I have been reinvesting
dividends since 1970.
The tax you pay on dividends has no affect on your basis, it
does not affect the basis anymore than if you took money out
of your pocket to purchase the stock. The source of the
funds to purchase and whether or not that source has been
taxed makes no difference.
--
-Ernie-
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Han on February 13, 2007, 10:48 pm
Please log in for more thread options Thanks, Ernie, Rich and Phil.
Things are much clearer now!
--
Best regards
Han
email address is invalid
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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