Reinvestment of dividends works just like a new purchase of stock shares. The shares that you buy through dividend reinvestment have a basis equal to the amount of dividends you gave up to obtain them. The calculation of cost basis becomes confusing when dealing with mutual funds because they often pay dividends and capital gains distributions usually are reinvested in the fund. How to Calculate the Cost Basis for Mutual Funds With Reinvested Dividends You have scored a nice profit on you mutual fund and now comes the hassle of figuring out the taxes. If you were calculating the average cost basis, the result is $18.75. Now that may not move the needle much, but there is a change to the cost basis of your entire position: Since you “paid” $1,119 and you own 112 shares, we calculate your cost basis by dividing $1,119 by 112.
Retirement Your dividend payout is enough for you to acquire an 10 additional shares, purchased at $31/share.
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How to Calculate Mutual Fund Cost Basis With Dividends. As a result, over time, your total cost basis in your position will rise.Eventually, when you sell your shares, your capital gain will be the difference between the proceeds from the sale and your cost basis in the shares. In the example, your cost basis would be $20, $25 and $14.29 per share for each respective reinvestment.
By contrast, specific identification can allow you to choose shares with smaller gains, but you might not have held those shares long enough to get preferential long-term treatment.The key aspect of calculating cost basis for DRIPs is that a little recordkeeping along the way can save a lot of time later on. Your cost basis is …
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Remember that dividends are the portion of the profits a company pays out to its investors (shareholders). For example, if you bought 400 shares of stock for $3,980 and a $20 transaction fee, your total basis is $4,000. If no other capital gains or dividends are reinvested and then you sell your shares for $10 (for example), you have a …
However, reinvested earnings affect basis. Reinvested Cost Basis. How To Calculate Cost Basis Stock Cost Basis. Calculate the total cost to purchase the stock by adding the purchase price to any transaction fees.
If you do the math, you’ll see that the cost basis is now $9.99 per share. As a result, over time, your total cost basis in your position will rise.Eventually, when you sell your shares, your capital gain will be the difference between the proceeds from the sale and your cost basis in the shares. Dividends become your money as soon as they are earned, so reinvestment just funnels more of your cash into the fund.
Dividends and capital gain distributions that you receive in cash do not affect the basis per share of existing shares. 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.
Each time you reinvest dividends or capital gains, you are purchasing additional shares; these purchases may change basis for the total position, but not the per share basis of existing shares. You might opt to use the second, simpler method when selling your entire portfolio.Reference your investment statements or contact your investment broker to look up the amount of each dividend reinvestment and the number of shares you acquired.Total each of these figures if you only wish to calculate the average cost basis. Here’s how it works. One way to get wealthy in the stock market is to take dividend-paying stocks and reinvest the quarterly payments they make into buying more shares. Since you “paid” $1,119 and you own 112 shares, we calculate your cost basis by dividing $1,119 by 112. Personal Finance
Reinvesting dividends is a powerful approach for compounding both total portfolio value and cash flow over the long term. In that case, you'll have to choose which method to use in selecting the exact shares that you sell.
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