How to calculate your adjusted cost base (ACB). There was a comment left on the “How Capital Gains Tax Works” article about how to calculate your capital gains when you make multiple stock purchases at different prices over the years.
The key is to go back into your records and find the transaction details to do an adjusted cost base calculation. After figuring out the ACB, calculating capital gains are pretty straight forward from there.
- May 2006: bought 100 shares of xyz @ $50
- Jan 2007: bought 200 shares of xyz @ $60
- Dec 2007: sold 100 shares of xyz @ $75
- Assume trade commissions are $10 each (see the discount brokerage comparison)
What is your capital gain?
First you need to figure out your average buy price or Adjusted Cost Base (ACB) or Cost Basis of the stock.
- ACB = (Total Cost + Commissions)/Total Number of Shares Owned
- ACB = [(100 x $50) + (200 x $60) + 20]/ 300
- ACB = $56.74 / share
Next we’ll calculate the Capital Gain (loss) of the transaction:
- Capital Gain (loss) = (Sell Price – ACB) x number of shares sold – commissions
- Capital Gain = ($75 – $56.74) x 100 – $10 = $1,816
- Capital Gains Tax = Capital Gains x 50% x Marginal Rate
A fairly straight forward but necessary calculation if you trade stocks in your non-registered account. I think the easiest way to do these calculations is either through a program like MS Money, Quicken, or through a simple spreadsheet to track your trades.
If you have a portfolio tracking spreadsheet that you would like to share, please contact me.
Note that the calculations and explanation above is done by an amateur. Please do your own due diligence or contact a tax professional for your own situation.
photo credit: tompagenet