How to Figure the Average Cost Basis After a Reverse Stock Split

by Nola Moore

In a reverse stock split, a company decreases the total number of outstanding shares without affecting the stock's intrinsic value or the total market value of all shares. If a stock you own goes through a reverse split, you need to adjust the cost basis -- the amount you paid for the stock -- to reflect the change to make sure that you monitor and report the correct gain or loss.

Collect data for each historical purchase and sale. You need to know the number of shares in each transaction, the cost of each share, and any commissions and fees you paid. On many statements, this will show up as a lump dollar value, such as "purchased 20 shares for $47.80" rather than "purchased 20 shares at $2 each."

Add up the total cost of all share purchases. This is the total original cost.

Divided the total original cost by the total number of shares purchased. This is the orginal cost per share.

Add up all shares you sold prior to the reverse split and multiply this number by the original cost per share. Subtract this number from the total original cost to get the average pre-split cost basis.

Divide the pre-split cost basis by the number of shares you hold after the reverse stock split. This is the average cost per share, after the reverse stock split.

Tip

  • If you bought and sold the stock several times, calculate your cost basis only on those shares you purchased since the last time you held zero shares, not your full history with the stock.

Items you will need

  • Statements or receipts showing all stock purchases and sales

About the Author

Nola Moore is a writer and editor based in Los Angeles, Calif. She has more than 20 years of experience working in and writing about finance and small business. She has a Bachelor of Science in retail merchandising. Her clients include The Motley Fool, Proctor and Gamble and NYSE Euronext.