Adjusted Cost Basis
A holder's purchase price in a security after adjustment for corporate actions that change the share count or basis without an economic gain or loss -- forward splits, reverse splits, spin-offs, return-of-capital distributions, and similar events. For a spin-off, the IRS requires allocating the original cost basis across the parent and spin-co based on relative post-spin trading values (per the issuer's Form 8937 disclosure). Forgetting to update basis after a corporate action is a common retail tax-reporting error that results in over- or under-paying capital gains.
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Related terms
Annuity · Capital Gains Distribution · Capitalized Interest · Cost Basis · Dividend Discount Model (DDM) · Dollar-Cost Averaging
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