Cost Basis: Stock Dividends and Stock Rights

What this video covers

• Why stock dividends are not taxable events and how the same total cost basis spreads across more shares, lowering per-share basis
• The formula for new cost basis per share after a stock dividend: original total cost basis divided by the new total number of shares
• Why stock splits follow the exact same rules as stock dividends, and how reverse splits increase per-share basis by the same inverse ratio
• The 15% fair market value (FMV) threshold: below it, rights have zero basis and allocation is optional; at or above it, allocation is mandatory
• Why an optional election to allocate basis to rights below the 15% threshold is irrevocable once made
• How to calculate basis for new shares when rights are exercised: allocated basis plus exercise price
• Why expired rights generate no loss and their allocated basis returns to the original shares instead