Any time you sell stocks that have increased in value from the time you purchased them, you'll have to report the capital gains in your tax filing. This is fairly straight forward; however, if the stock split before you sold the shares, calculating your earnings becomes a bit more complicated. Fortunately, the calculations for gains on split stocks are relatively straightforward.
1. Calculate the sales price of shares you sold. For example, if you sold 100 shares at $50 per share, your total sales price is $5,000.
2. Convert the number of shares to the pre-split figure by reversing the split ratio. For example, a 2-for-1 stock split created two shares for every original share you purchased. Reverse the stock split using a 1-for-2 ratio, so that two shares of your current holdings amounts to one share of original stock. If you sell 100 shares of a stock that split 2-for-1, you owned 50 shares of the stock before the split.
3. Multiply the original number of shares held by the purchase price of the shares to determine the initial cost, known as the cost basis. If you purchased 50 shares at $60 per share, the cost basis is $3,000.
4. Subtract the purchase price from the sales price to determine the capital gains from this transaction. In the example above, your capital gains are $5,000 minus $3,000, or $2,000.
- You can subtract trading costs, such as brokerage fees, from your capital gains to reduce the taxable amount reported to the IRS.
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