Cost Basis: Stock Dividends and Stock Rights

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Chapters in this video

  1. 0:00 The pizza-slice rule for total cost basis
  2. 1:16 Carla's 10% stock dividend math
  3. 2:28 Why stock dividends are not taxable
  4. 3:05 Forward and reverse split basis trap
  5. 4:16 The 15% FMV threshold for stock rights
  6. 5:51 Irrevocable elections and expired-rights no-loss trap
  7. 7:21 Rapid-fire exam recap

What this video covers

  • Why a stock dividend is not a taxable event, and how the total cost basis stays fixed while per-share basis drops
  • The formula for new per-share basis after a stock dividend: original total cost basis divided by total shares (old plus new)
  • How forward splits (2-for-1, 3-for-1) and reverse splits (1-for-2) reallocate per-share basis without changing the total
  • Why a reverse split increases per-share basis, and the trap of assuming "reverse" means a lower cost per share
  • The 15% fair market value (FMV) threshold for stock rights: below 15% allocation is optional, at or above 15% allocation is mandatory
  • Why an elected allocation on sub-15% rights is irrevocable once made
  • The three outcomes for stock rights (exercised, sold, expired) and why expired rights with allocated basis generate no capital loss

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