How To Find the Cost Basis of Your Stock

If I had to pick one question I get most often, it's how to figure the cost basis of a stock. Readers ask it mostly around tax time, but it comes up all year. The cost basis is how much you paid for a stock, including commissions and reinvested dividends. We'll talk about stock, since that was your question, but many of the same factors apply to mutual funds and other assets, including your home.

After you buy a stock, your broker will tell you how many shares you bought, at what price, and what you paid in commissions.

Your cost basis will determine how much tax you owe when you sell the stock. If you sell a stock for more than your cost basis, you will owe capital gains tax on the profit. If you don't have the cost basis, you risk paying too much tax, which you don't want to do.

Second, your cost basis is a key ingredient to tracking your investment performance.

Given how vital cost basis is, I'm amazed at how many people don't keep track of it. Every week I hear from an investor trying to find out what they paid for a stock.

You can't rely on your broker to track cost basis for you, either. Some don't track cost basis correctly. Even more likely, if you ever transfer your brokerage account to another firm, your cost basis most likely will be lost.

So. What should you do if you need to find a cost basis? Generally, you have a few options based on how you answer the following questions:

• Does the stock still trade and do you know the date you bought the stock? If so, you're in luck. Using USATODAY.com's free historical price quote lookup, you can pull up a stock's high, low and closing price on that day. If you want to look up prices for another stock, just put the name or ticker in the Get a Quote box on that page, and click on the Historial Quotes tab when the new stock comes up.

• Does the stock no longer trade and you know the date you bought the stock? This scenario gets trickier. Depending on why the stock doesn't trade, you might need to do more calculations, which goes beyond this column. Most online services don't carry historical quotes for defunct stocks. But you can get back copies of USA TODAY newspapers or The Wall Street Journal at your local library and look up historical stock prices that way.

• Do you not know the date you bought the stock? This is the worst-case scenario. Your only hope might be to check your old brokerage statements to try to determine when you bought the stock. You don't want to ever get into this situation. If you read on, I'll show you how to make sure you always have your cost basis.

My top suggestion, while it won't help you retroactively, is to start using Microsoft Money Plus Deluxe.
If you enter all your stock trades into Money Plus, you'll always have the cost basis. All your stock data is stored on your computer's hard drive, so you have access to the information at all times, if you back it up. Money Plus not only tracks your investing performance, but lets you print out detailed reports showing your holdings and your cost basis. The software also lets you figure out, before you sell a stock, what the potential capital gains hit would be, using its built-in Capital Gains Estimator. Money Plus offers other personal finance tools to help manage your checking and savings accounts.

There are other options. But they have serious issues, so I can't wholeheartedly recommend them. Some of the alternatives:

• Intuit's Quicken. Quicken also helps track the cost basis on your investments. I can't recommend the software, though, because some users, including me, have had trouble running it on computers with Microsoft's latest operating system, Vista.

Even some Mac users say Money is the best choice. Quicken hasn't been updated for the Mac in many years, although Intuit says an update is due this summer. Some Mac users run Windows just so they can use Money.

• Online personal finance tools. Several online offerings are interesting, but still not adequate for investors.

One option, Mint.com, looks promising and does a nice job showing you the balances in your accounts, from brokerage to checking and retirement. But some may not like the idea of giving all their account information to a third-party website. To use Mint to track your accounts, you must provide your user name, password and trading password.

Forgetting potential security concerns, which may never be an issue, Mint doesn't yet have the power to handle what most investors need in tracking cost basis. For one thing, at least in my experience, the service doesn't allow you to track different lots. So, let's say you bought 100 shares of GE stock in 2006 and another 100 in 2007. You have two lots of GE stock, each of 100 shares.

Mint groups both purchases into one, providing some sort of average for all 200 shares, which isn't adequate for most users. There are tax benefits to tracking what you paid for the first 100 shares of GE and the second 100 shares.

Mint doesn't track the timing of transactions well enough for serious investors, either. If you bought the stock recently, the date of purchase may be imported into Mint. However, if it's an older position, you might be out of luck. While you can manually enter the price you paid for a stock into Mint, you're not able to enter the date you bought it.

This is inadequate. Gains on stock you own more than a year are taxed at a lower rate than stocks you own a year or less. Mint seems to be improving the service constantly, so it's worth watching.

But for investors who need to track their cost basis, Microsoft Money is still the way to go. Hopefully Microsoft will continue to improve that software, perhaps improving the links to its MSN Money service, as well.