Stock market: capital gains (short-term & long-term) vs. a reverse stock split &...

[scrabyip]

...fractions? 1jul06: bought 10 shares of XYZ stock
1jul07: bought 6 more shares of XYZ
1oct07: the stock reverse-splits 1-for 4
1 dec07: If I SELL 3 shares (of the 4 left after the split), how can I know whether the 3 are short-term or long-term when I figure capital gain? I think I know the rules for figuring the _amount_ of gain/loss but my accountant & stockbroker are clueless (as am I) as to the holding periods & all. Help!

[zman492]

You sold 2.5 shares for a long-term capital gain (or loss) and 0.5 shares for a short-term capital gain (or loss).

The cost of the 2.5 shares is what you paid for 10 shares on 1Jul06. The cost of the 0.5 share is 1/3 of what you paid for 6 shares on 1Jul07.

The sale price of the 2.5 shares is 5/6 of what you received for 3 shares on 1Dec07. The sale price of the 0.5 share is 1/6 of what you received for 3 shares on 1Dec07.