stock dividend with cost basis change

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Topic: stock dividend with cost basis change

fn user
Member

posted 10-19-2001 08:54 AM

After researching stock dividend transactions I need help in posting nontaxable stock dividends.

Sample: The fund issuing the stock dividend has a cost basis of $25.
The stock dividend is valued $800
The second part of the transaction - buying the new lot for $800 - is clear.

The first part presents a problem: to create a Return of Capital does not work because my cost basis in the original fund is less then the return. And it seems to me after reading the IRS tax code that the cost basis should be allocated between the old and new stock on the date of the stock distribution.

A previous forum entry to "deposit dividend amount" would not work because it is a nontaxable dividend and I cannot credit an income acct as the other side of the deposit equation.

What do I have to do?

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Pamela
Member

posted 10-19-2001 08:58 AM

Actually, there is a non-taxable dividend category under income class. It is called Dividend-Non Taxable Dist. I don't think this applies here because of the cost basis adjustment needed. But in the future, if it was a basic stock div, you could deposit the value amount as a non-tax div, and then buy the "new" stock.

The company issuing the stock dividend should have sent you a notice telling you what the cost basis adjustment should be. If they didn't, then you can get it from the brokerage house where you are holding it.

When the cost basis is affected on a stock dividend, then you have to :

1. Sell the OLD stock at cost with no tax affect. (change the tax code so it doesn't show on Schedule D)

2. Buy the OLD stock back at the NEW adjusted cost for old shares, same date and shares etc.

3. Buy the NEW stock for the NEW adjusted cost for new shares, with same date as old stock.

Make sure a memo on each transaction details what you are doing.(i.e. Stock div - new Cost Basis 28% of old stock ABC Co)

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