Capital Gains and Losses
When you sell a capital asset (stocks, bonds or real estate) the capital gain (loss) is the difference between the sales price and the purchase price, less brokerage fees. The sales price includes all broker fees and/or commissions.
Gain. If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain.
Loss. If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss.
Why Is Knowing Your Cost Basis Important?
Knowing the cost basis of your shares is necessary for tax-reporting purposes when you sell or otherwise dispose of the shares. The cost basis is how much you paid for your shares after you take into account stock splits, acquisitions and other events.
To determine your cost basis, you need to know the original price paid for the shares, the date you acquired them and how you acquired them.
Example A: | ||||
| 9/15/09 | Buy A Company | $25.00 share | 5 shares plus $10 fee | $135.00 paid |
| 11/11/09 | Sold A Company | $30.00 share | 5 shares less $10 fee | $140.00 received |
Capital Gain (since this was sold for more than the total purchase price) $5.00
This gets more complicated when there are dividends reinvested or stock splits.
Example B: | ||
Date | # shares | Total Cost |
| 9/15/09 Buy | 5 shares | $135.00 |
| 9/30/09 Reinvest dividend | .25 shares | $7.00 |
| 12/31/09 Reinvest dividend | .28 shares | $6.50 |
As of 12/31/09 you have 5.53 shares for a total cost of $148.50. For 2009 you will have taxable dividend income of $13.50.
These records must be kept for every capital asset that you own and for 7 years after you have sold or disposed of the asset. You broker may be able to help but the responsibility is yours.