Sold stock from dividend reinvestment DRIP account - how are these funds taxed?

Question

I have had a dividend reinvestment account that has been active for almost 30 years. I sold 3/4 of it in order to purchase a home this year which amounted to about $75,000. According to the cost basis calculator on the tax software I'm using, I will owe about $13,000 - does this sound accurate? I do not have the full purchase history - the stock has gone through several mergers since it was acquired when I was a baby. I hope I'm doing something wrong - any direction would be much appreciated.

Answer 1

The $13,000 number is too high, barring unusual circumstances. The maximum LTCG rate is 15%. Therefore, if you had -0- basis in the stock, your taxes would be $11,250, unless you had an Alternative Minimum Tax issue. My advise is to spend some time in reevaluating the cost basis. It may save you money.

Answer 2

This is going to be tough. All the dividends that were reinvested could be added to the basis but it doesn't sound like you have any idea what those were. And unfortunately, if you can't show what the basis is, you have to take zero. If you have a partial purchase history, even if you could show the last x number of years, it would save you some money since you'd have SOMETHING to show as basis. Can the company help you at all on this?

The other responder is right that since the max rate on capital gains is 15% unless you're running into the AMT, your tax should be a little lower than your $13K estimate.

Good luck.

Answer 3

Instead of individual stocks, find a mutual fund. And consider it "on sale" because when market is down it's a good time to buy. Research the different funds available and pick one you like based on all the companies in it and how it has performed previously. Historically, over a 20 year period,stocks earn about 12%. And that's factoring in the ups and downs.