Adjusted Basis: Dividends, Splits & Corporate Actions
How your basis changes after you buy.
Your starting basis is usually what you paid. Over time it is adjusted up or down (IRC § 1016 and Pub. 551). Common adjustments for investors:
| Event | Effect on basis |
|---|---|
| Commissions and fees to buy | Increase |
| Reinvested dividends and capital gain distributions | Each reinvestment is a new lot with its own basis |
| Stock split or stock dividend | Total basis unchanged, spread over more shares |
| Return of capital (Form 1099-DIV box 3) | Decrease |
| Wash sale loss disallowed | Added to the replacement shares |
| Spin-off | Original basis divided between the old and new company |
| Taxable merger for cash | A sale: gain or loss realized |
| Accrued market discount and bond premium amortization | Increase / decrease |
Example: reinvested dividends
You buy 100 shares for $5,000. Over several years, $600 of dividends are reinvested to buy 12 more shares. You paid tax on the $600 each year. Total basis = $5,600 for 112 shares. If you forgot the reinvestments and used $5,000, you'd overstate your gain by $600.
Example: a 2-for-1 stock split
You own 100 shares with a basis of $6,000 ($60 per share). After a 2-for-1 split you own 200 shares. Total basis is still $6,000, now $30 per share. The holding period of the new shares is the same as the original shares.
Example: a spin-off
You own 100 shares of ParentCo with a $10,000 basis. ParentCo spins off SpinCo, giving you 50 SpinCo shares tax-free. ParentCo's Form 8937 says to allocate 80% of basis to ParentCo and 20% to SpinCo. Your basis becomes $8,000 in ParentCo ($80/share) and $2,000 in SpinCo ($40/share). The holding period of SpinCo includes your ParentCo holding period.
Where to find corporate-action details
Companies that take an action affecting shareholders' basis (splits, spin-offs, return of capital, some mergers) generally must file Form 8937 and post it on their investor relations site. Brokers use it to adjust basis for covered securities; for noncovered shares, you make the adjustment yourself.
Sources
- 26 U.S.C. § 1016: Adjustments to basis
- IRS Publication 551: Basis of Assets
- IRS Publication 550: Investment Income and Expenses (basis of investment property, wash sales, nondividend distributions)
- IRS: About Form 8937, Report of organizational actions affecting basis of securities
- IRS: Instructions for Form 1099-B (covered securities, boxes 1e, 1g, 5 and 12)
Last reviewed: November 2026