Stock Basis and Holding Period
Your starting point for learning about the basis and holding
period of any shares of stock you own.
Basis is important because it's used to
determine how much gain or loss you report when you sell your stock, and may be used for
other purposes as well. Your holding period is essential in
determining what category of gain or loss you have when you sell.
In the easiest case your basis is simply the amount you paid for the stock plus the
brokerage commission. But there are different rules for finding the basis and holding
period of stock acquired in different ways. Also, various events that occur after you own
the stock may cause your basis to change. For example, a stock split doesn't change the
total basis of your stock, but it changes the basis per share.
So your basis for your stock at any point in time is equal to:
- Your initial basis (the basis
immediately after you acquired the stock),
- Plus or minus any adjustments in your
The tax law refers to this number as your adjusted basis. If
there have not been any adjustments, then your adjusted basis is the same as your initial
Your holding period normally begins on the day after you acquire stock. But there are
special rules here, too. For example, if you receive stock in a stock split, the new
shares you receive will have the same holding period as the shares you previously owned.
You bought 40 shares of XYZ in 1995. In 1998 the stock splits and you receive 40 new
shares giving you a total of 80. A sale of the new shares will produce long-term capital
gain or loss even if you actually hold them only one day.
Determining Basis and Holding Period
Headings in the paragraphs below are links to pages explaining how
different kinds of transactions affect your basis and holding period.
Stock You Purchased
This page provides the rule for determining your initial basis and holding period for
normal stock purchases.
Stock Acquired Through a
Dividend Reinvestment Plan
Your initial basis for stock you purchase through a dividend reinvestment plan may be
different than if you bought the stock directly through a broker.
Stock Received as a Gift
If you receive stock as a gift, you need to get basis and holding period information from
the person who gave it to you.
Stock Received from Your Spouse
There's a special rule for any stock you receive from your spouse, whether it's a gift, a
sale, or part of a divorce.
Stock Received from a
There's a unique rule that "steps up" the basis of stock when you inherit it.
Stock from Options
You can acquire stock by exercising options (or warrants or stock rights), or when someone
else exercises a put you sold. Choose this link to learn about basis in these situations.
Stock Dividends and Splits
You may receive stock when a company declares a stock dividend or split. This page
explains the effect on your basis and holding period.