Selling stock at a profit is always fun, at least until tax time, but stock splits can confound the basis computations for the uneducated. Fortunately, figuring out this issue is not as complicated as you think. All it takes is simple math and some information pertaining to the original purchase of the stock.
Instructions
1. Find the original cost basis of the stock when it was purchased at its pre-split price. The confirmation statement from the purchase will have this information. If you don't have this statement, your brokerage firm should be able to provide it for you.
2. Determine the number of splits and their ratios to match up the number of shares that were bought and sold. Trace the mathematical progression through the splits to their current price. For example, if you bought 100 shares of stock five years ago, and it split 2 for 1 once and then 3 for 1 later, you will have 600 shares of stock now.
3. Make the appropriate fractional adjustment when computing basis. For example, if you bought 100 shares of stock at $50 per share and it split 4 for 1, then you will have 400 shares worth $12.50 each. Therefore, if you sell 100 shares at $15 per share, you have a gain of $2.50 per share, or $250.
4. Remember that stock splits have no effect upon whether a gain is long- or short-term. If you bought the original stock five years ago, your gain or loss will be long-term, regardless of the number or amount of stock splits that happened in between.
