Ask Terry Questions Cost basis after reinvesting dividends

Cost basis after reinvesting dividends

By Terry Savage on January 22, 2023 | Investments

Hi Terry, First I wanted to thank you for turning me on to treasury direct.

My question is how do I calculate cost basis on a dividend paying stock reinvested.

EX: if I buy 10 shares at ten dollars of a stock paying a ten cent dividend.

My cost would be $100. once dividend is paid cost should be $99. with 10.01 shares.

Do I divide $99 by 10.01 shares to figure out cost per share, or would that be double dipping and I should use the 10 share amount?

Thank you, love your webpage and listening to you on WGN.

Terry Says

No, no, no. Dividends are taxed as ordinary income in the year you receive them. They do not impact your cost basis — unless the dividend is labeled as a partial return of capital.



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