How do you calculate cost basis when dividends are reinvested?

Dividend reinvestment Your basis in shares purchased through a dividend-reinvestment plan is the stock’s cost. Thus, if you have $500 in dividends reinvested and it buys you 30 additional shares, your basis in each share would be $16.67 ($500 divided by 30).

Do stock dividends change cost basis?

When you receive a dividend, the total value (basis) of the stock doesn’t change. Instead, the basis of each share changes. Stock dividends usually don’t have tax implications until you sell the shares. So, the amount paid in cash for the fractional share is considered taxable income.

Are reinvested capital gains included in cost basis?

If you reinvest a capital gains distribution, then it will be treated the same way any other investment in the fund would. Take the amount of the distribution and add it to the previous cost basis for your fund shares. The total is the new cost basis for your entire fund holdings.

Why does my cost basis change?

Any transaction that increases or decreases the number of shares in a position can affect cost basis. When you buy or sell shares of a security, the cost basis of your position in that security will change. Events such as splits, spin-offs, and liquidations can all affect cost basis.

Can you reinvest dividends without paying taxes?

Dividend Reinvestment Basics Dividend reinvestment can increase the value of a portfolio even if the prices of stock remain stagnant. Reinvestment does not, however, let you avoid paying taxes on dividends; you must report reinvested dividends as dividend income.

Do dividends count towards cost basis?

Cash dividends do not lower the cost basis of an investment, either when you actually receive cash or when you use the proceeds to purchase new shares. A stock dividend, however, does adjust cost basis, as does a “return of capital.”

How do mutual fund dividends affect cost basis?

The reinvestment of mutual fund distributions — dividends and capital gains — does increase your cost basis. A higher basis is a good thing because you will pay less in capital gains taxes with a higher basis if you sell your fund shares.