Basis of Stock You Purchase

This page explains how to determine your initial basis and your holding period for stock you bought in a normal purchase. The general rules here don’t apply in the following special 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.)

Cost basis

If none of the special situations mentioned above apply, your initial basis for stock you buy is:

1. The amount paid for the stock, plus
2. 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.

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.