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Notes -
When I have any security set up with DRIP (dividend reinvestment plan), my cost basis on these new fractional shares is showing up as $0.00.
This seems like a visible, tangible difference from how it'd be if I'd “coincidentally bought shares” just afterwards (with the dividends) manually — which would, at least as far as the new shares are concerned, seem to be a better situation since if/when I sell those new shares I'd be realizing less gain.
So… does DRIP actually affect the basis of the shares that issued the dividend? Do I get some adjustment to its basis when the dividends are DRIP'd to compensate me for this zero-basis on the new shares?
Wouldn't you have to pay capital gains tax on the dividends you collect right away, if you were to follow the collect-and-buy-manually algorithm? If you get $1 in dividends and buy $1 in shares which you later sell for $3 from a cost basis of $1, you pay tax on $1 initially and $2 at sale. If you use your DRIP to auto-buy the same shares, you pay no tax initially and later sell an $3 share with $0 cost basis and hence pay tax on $3.
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