|
Groovy Grant

Registered: 07/31/00
Posts: 6,635
Loc: TX
Last seen: 14 days, 23 hours
|
Negative Cost Basis?
#15941227 - 03/13/12 07:08 AM (11 years, 10 months ago) |
|
|
I have an unusual circumstance and I don't know how to track it.
Several years back I bought 4.9259 shares of AAPL for a cost of $1,000. Today, I'm planning on selling 1.9259 shares at a strike price of $557/shr, which will yield a net amount of $1,062.78 after brokerage fees.
My question is stems from how to carry cost basis with partial lots sold. In the past, whenever I sold a partial lot, I backed out the net amount I sold from the original sales price and than reduced the shares held by the amount sold. Basically applying the sale against my bottom line, either reducing or increasing my remaining shares cost basis.
However, in this circumstance, I'll have a -62.78 for the three remaining shares, or a negative cost basis of 20.93 per share. Is that possible? Or should I back out the average cost per share (which would be different from what I've been doing).
The account is a ROTH, so there isn't any TAX consequences, but rather for me to track gains in the account in the future (for my records).
Thank you!
|
geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 3 minutes, 27 seconds
|
|
Your net gain/loss should always be calculated on a comparable basis, share for share. Therefore, the basis on your sale of AAPL should be 1000/4.9259 = $203.008. While you can do whatever you want for your personal record keeping, professionally, it is not appropriate to use the basis on a 4.9259 share purchase to calculate your gain/loss on a sale of only 1.9259 shares, because the amounts are not equal. For tax purposes (not applicable in this scenario), you will also need to decide on an accounting method for partial sale lots: FIFO (First In First Out) or LIFO (Last In First Out). For example, if you bought 2 shares of AAPL at $150 and another two shares later at $250, and then sold 1 share at $500, using FIFO accounting, your net gain would be $500-$150 = $350; using LIFO, your net gain would be $500 - $250 = $250.
I prefer to use LIFO accounting, since I generally assume that if I'm adding to a position, I'm paying a higher share price that I did for the earlier lots (I tend only add to positions that are working). Therefore, since the sale of my first purchases will carry the highest gain (and therefore the highest tax consequence), I want to stack the sales in such a way that the larger net gains (from the first purchases) will have a higher probability of falling under long term capital gains rates versus short term capital gains rates. LIFO accounting allows you to do this, because the shares you bought first, will be the last ones accounted for during any subsequent sales.
Good job on the AAPL trade!
--------------------
-------------------- ┼ ··∙ long live the shroomery ∙·· ┼ ...╬π╥ ╥π╬...
|
geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 3 minutes, 27 seconds
|
|
Your net gain/loss should always be calculated on a comparable basis, share for share. Therefore, the basis on your sale of AAPL should be 1.9259 x (1000/4.9259) = $390.97, or $203.008 per share. While you can do whatever you want for your personal record keeping, professionally, it is not appropriate to use the basis on a 4.9259 share purchase to calculate your gain/loss on a sale of only 1.9259 shares, because the amounts are not equal. For tax purposes (not applicable in this scenario), you will also need to decide on an accounting method for partial sale lots: FIFO (First In First Out) or LIFO (Last In First Out). For example, if you bought 2 shares of AAPL at $150 and another two shares later at $250, and then sold 1 share at $500, using FIFO accounting, your net gain would be $500-$150 = $350; using LIFO, your net gain would be $500 - $250 = $250.
I prefer to use LIFO accounting, since I generally assume that if I'm adding to a position, I'm paying a higher share price that I did for the earlier lots (I tend only add to positions that are working). Therefore, since the sale of my first purchases will carry the lowest basis/highest gain (and therefore the highest tax consequence), I want to stack the sales in such a way that the larger net gains (from the first purchases) will have a higher probability of falling under long term capital gains rates versus short term capital gains rates. LIFO accounting allows you to do this, because the shares you bought first, will be the last ones accounted for during any subsequent sales.
Good job on the AAPL trade!
--------------------
-------------------- ┼ ··∙ long live the shroomery ∙·· ┼ ...╬π╥ ╥π╬...
|
Groovy Grant

Registered: 07/31/00
Posts: 6,635
Loc: TX
Last seen: 14 days, 23 hours
|
Re: Negative Cost Basis? [Re: geokills]
#28474580 - 09/19/23 05:27 AM (4 months, 7 days ago) |
|
|
Never sold the remaining shares. It's been a crazy ride since. Got my basis out eleven years ago, plus some, and then AAPL split, started paying a dividend, and split again. An effective 1 for 21 split, and yield of a few percent. Those initial 3 shares are now nearing 100 shares... on a basis $561.37 - probably one of my most profitable holdings!
|
|