Saturday, May 13, 2000

Personal Finance

Finding cost basis a futile aim

        Question: About 40 years ago, my father gave me 20 shares of Cincinnati Bell. He has since passed away. Now, with reinvestment of dividends and splits, I have given my grandchildren each 100 shares. Since then, Cincinnati Bell has split and is now Broadwing and Convergys. What should they use as a cost basis?

        The easy answer, unfortunately, is that their cost basis is next to nothing. You might not even want to try. Among the stockbroker, accountant and Broadwing investor relations spokespeople I've consulted, it's unanimous: You likely will never be able to come up with an exact answer, and it might not be worth the trouble.

        Because the shares were transferred both times as a gift — not an inheritance — the recipient assumes the donor's basis. Had the shares been transferred as part of an inheritance, we could be talking about a stepped-up basis, or one based on the price on the date of death.

        Instead, we're talking about a basis that starts at Cincinnati Bell's price at least 40 years ago.

Doing the math
        First, you have to find out what your father paid. Then divide that by 64 because Cincinnati Bell stock split 2-for-1 six times, starting in 1965.

        Then, account for when the company spun off Convergys — and 57 percent of the stock's cost basis with it, said Wayne Buckhout, Broadwing's investor-relations spokesman.

        Next, multiply by 0.57 for your Convergys shares and 0.43 for your Broad- wing shares.

        According to Enquirer archives, Cincinnati Bell was trading in June 1960 on the Cincinnati Stock Exchange for 90 cents a share. A descendant Broadwing share today has a basis of 0.6 cents, and a descendant Convergys share has a basis of 0.8 cents.

Which shares given?
        But do you know which shares you gave the kids — the ones based on your father's purchase or the ones you bought through dividend reinvestment?

        The above calculations only apply to the stock your father originally held. The basis for the stock acquired through reinvested dividends is whatever those dividends were. Then, along every step of the way, you need to account for the splits.

        This is the near impossible part, unless you kept meticulous records and brokerage statements.

        For his clients, Ken Weiss at Prudential Securities says he does “a best guesstimate. We re-create what we can, and give a reasonable estimate.”

        The bottom line, however, is that it might be much more trouble than it's worth. Selling a 100-share lot of Broadwing at $30 each would bring in $3,000. Assuming the lowest tax bracket and no basis, that could mean $300 in capital gains taxes.

        Factor in the 0.6-cent cost basis, and we're looking at a taxable gain of $2,999.40 — or $299.94 in capital-gains taxes.

        Is saving 6 cents really worth it?

        Amy Higgins writes about personal finance for The Enquirer. You can reach her at; (513) 768-8373; or Your Money, The Cincinnati Enquirer, 312 Elm St., Cincinnati, OH 45202.


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