How to determine your basis and holding period for stock bought in a normal purchase.
Table of Contents
This page explains the general rule to determine your initial basis and your holding period for stock you bought.
Cost basis
If none of the special situations mentioned above apply, your initial basis for stock you buy is:
- The amount paid for the stock, plus
- Any costs of purchase, such as a brokerage commission.
Example: You buy 40 shares of XYZ at $38.50 (total purchase price $1,540) and pay a $20 commission on the purchase. Your initial basis for this stock is $1,560, or $39.00 per share.
We use the term initial basis because a subsequent event such as a stock split could change your basis. The IRS uses the term adjusted basis to mean its current basis with any adjustments that might be required. If nothing has happened to alter the basis, your adjusted basis is the same as your initial basis.
You could run into a situation where you bought shares at two different prices, even though you made a single purchase. In this case you own two lots of shares, and each has a different cost basis. See Multiple Lots of Shares. If you paid a brokerage commission, you’ll have to allocate it between the two lots.
Holding period
Regular stock purchases have a trade date (when the broker executed the transaction) and a settlement date (when the shares and cash change hands). See Trade Date and Settlement Date. Your holding period is measured from the trade date. To have a long-term capital gain, you need to hold these shares until the anniversary of the day after the purchase.
Example: The trade date of your purchase is December 15, 2018. If the trade date of your sale is December 15, 2019, you will have short-term gain or loss. If the trade date for your sale is December 16, 2019 or later, your gain or loss is long-term.
Exceptions
As always in the tax law, there are exceptions. The general rule doesn’t apply in the following situations:
- Stock you bought from your spouse.
- Stock you bought through a dividend reinvestment plan.
- Stock you bought when you exercised an option.
- Stock you bought in a wash sale. (A wash sale occurs when you sell stock at a loss but purchase identical stock within 30 days before or after the sale.)