Taxation of DRIP purchases

[p2potter]

Folks,

I have been purchasing (monthly) and reinvesting dividends (also monthly) of a particular stock for the last 6 years. Currently the basis is less than the total value. If I decide to sell everything (I have all records so I can calculate exact numbers if necessary), do I need to count the last 12 months of purchases (both direct and from dividend reinvestment) as short term, and the previous 5 years as long term losses. Is it possible to generate an average cost basis per share in this example, perhaps just for the LTCG?

Alternatively, would it be easier to wait 12 months with no more purchases and just sell everything as a long term transaction using average share cost?

I don’t think the price of the shares are going to increase or decrease dramatically over the next year or so, so financially that will not be an issue.

Thanks!

[kaneohe]

not clear what your situation is: you talk about basis < total value but
then talk about ST and LT losses.

It does appear possible to have AVB for a DRIP. Is that what you have?
(edit to add: I see that’s in the title and only there, tho the content suggests that)

“Average Basis
You can use the average basis method to determine
the basis of shares of stock if the
shares are identical to each other, you acquired
them at different times and different prices and
left them in an account with a custodian or
agent, and either:
• They are shares in a mutual fund (or other
regulated investment company);
• They are shares you hold in connection
with a DRP, and all the shares you hold in
connection with the DRP are treated as
covered securities (defined later); or
• You acquired them after 2011 in connection
with a DRP.”

Not sure what you are trying to accomplish. You seem to have all the info to do the calculations w/ specific shares and are going to sell all the shares? I think the total gain/loss will be the same no matter what method you use but there may be a shift between long/short term results by different methods.

• This reply was modified 2 years, 4 months ago by kaneohe.
• This reply was modified 2 years, 4 months ago by kaneohe.

[p2potter]

Sorry I meant to say that basis is more than current total value. So I can use average cost for the sale. I am just thinking that would be easier than calculating gains and losses for ~150 transactions.

Thanks!

[Lewis-H]

Even though investors do not receive a cash dividend from DRIPs, they are nevertheless subject to taxes, due to the fact that there was an actual cash dividend–albeit one that was reinvested. Consequently, it’s considered to be income and is therefore taxable.

[Author]

Posts