Calculating an Investment’s Basis

Your capital gain or loss on the sale of an investment equals the proceeds from the sale less your basis (the cost of acquiring the investment). When you purchase an investment, your basis equals the price you paid plus any fees or commissions. While the calculation is fairly straightforward, other factors can affect your basis calculations:

• Reinvested dividends are added to your basis at full market value plus any fees or commissions.

• The basis of any investment received as a gift is the donor’s original basis plus any gift tax paid by the donor. However, if you then sell the investment at a loss, your basis is equal to the lesser of the donor’s basis or the investment’s fair market value on the date of the gift.

• For inherited investments, the basis is the market value on the date you inherited the investment, typically the date of the donor’s death.

• Your basis in stock that has been split is the same as your basis before the stock split. Your per share basis, however, will now equal your total basis divided by the number of shares you own after the split.

• When you exercise a stock option, your basis equals the price you paid for the shares plus any fees or commissions, which may be lower than market value. Shares must be retained for at least one year after purchase and for two years after receipt of the option, or any gains will be taxed as ordinary income.

Please call if you’d like help calculating your basis in an investment.