How do I determine cost basis for DRIP shares after multiple stock splits?

You're on the right track! Stock splits don't change your overall cost basis, they just divide it among more shares. For your original 1 share that became 4 shares after the splits, the cost basis of that initial share gets divided by 4. So if your original share cost $100, each of those 4 shares would have a cost basis of $25. Using FIFO, when you sold 2.8 shares, you would indeed be selling from those initial 4 shares that came from your original gift. And yes, if you sold 3.5 shares, you'd be using 3 shares from your original gift, plus 0.5 shares from your earliest DRIP purchase. The paper certificate still represents your oldest shares for cost basis purposes. The DRIP purchases would be considered separate lots with their own purchase dates and cost bases.

Just wanted to share that I had a similar situation with some AT&T shares and used https://taxr.ai to figure it all out. My situation was actually more complicated because AT&T had multiple spinoffs and I had decades of DRIP purchases to sort through. The tool analyzed my transaction history and calculated the correct cost basis for each lot, taking into account all the splits, spinoffs, and DRIP purchases. Saved me hours of spreadsheet work and probably prevented some costly errors.

I was totally skeptical about using an automated tool for my complex cost basis situation, but I finally tried https://taxr.ai after spending weeks trying to manually calculate my cost basis for some old Exxon shares I'd had in DRIP since the 80s. The tool identified several stock splits and corporate actions I'd missed in my calculations. It even correctly handled the Exxon/Mobil merger and subsequent splits. My accountant was impressed with how detailed and accurate the report was. Definitely saved me from potentially significant reporting errors on my taxes.

If anyone's struggling to get through to the IRS for help with cost basis questions (I was on hold for HOURS), I found this service called Claimyr that got me connected to an IRS agent in about 20 minutes: https://claimyr.com You can see how it works here: https://youtu.be/_kiP6q8DX5c I was skeptical that it would work for something as specific as cost basis questions for inherited stocks with DRIP and splits, but the agent I spoke with was actually really knowledgeable and walked me through the whole calculation process. They even emailed me some IRS publications that specifically addressed my situation.

I have to eat my words. After posting my skeptical comment, I was desperate enough to try Claimyr for a complicated cost basis question about some GE shares that went through multiple splits and that weird reverse split a few years ago. I got through to an IRS agent in about 15 minutes. The agent walked me through Publication 550 and explained exactly how to calculate my adjusted basis for each transaction. Saved me from making a $4,000 mistake on my taxes. I'm still in shock that it actually worked after months of trying to get through on my own.

Don't overlook that brokerages are required to track cost basis for shares purchased after certain dates (2011 for stocks). But for your older shares, they might not have that data. For those older shares, you might want to consider specific identification instead of FIFO when selling - you can choose which shares to sell based on which gives you the most tax advantage. Just make sure to notify your broker BEFORE the sale which specific shares you want to sell.

Has anyone dealt with calculating cost basis when you've lost some of the records? I've got IBM shares from my grandfather but missing some of the original documentation.

For missing records, you might also want to check if your company had a transfer agent that kept historical records. Many older stocks were managed by companies like Computershare or AST Financial Services, and they sometimes have records going back decades. If you can establish the original number of shares and approximate purchase date, you can work backwards through all the corporate actions (splits, spinoffs, etc.) to determine what you should have today. The key is documenting your methodology in case the IRS ever questions it. I had a similar situation with some old utility stocks from the 80s where I'd lost the original paperwork. I was able to reconstruct the cost basis by finding the stock's historical prices and applying all the subsequent splits and dividend reinvestments. It took some detective work, but it's definitely doable with patience.

I went through something very similar with my old Coca-Cola shares that I inherited and had in DRIP for years. The key thing to remember is that each DRIP purchase creates a separate tax lot with its own cost basis and purchase date, even if it's just buying a fraction of a share. For record-keeping, I'd strongly recommend creating a spreadsheet that tracks each purchase (including reinvested dividends) with the date, number of shares purchased, and price per share. Then apply any stock splits chronologically to adjust both the share count and cost basis per share for each lot. When you sell using FIFO, you're correct that you'd start with your oldest shares first. So yes, your original gifted share (now 4 shares after the splits) would be sold first, then move chronologically through your DRIP purchases. One thing to watch out for: make sure you're accounting for any dividend reinvestments that happened between the stock splits, as those would have their own purchase dates and would also be subject to the split adjustments. It can get complex quickly, but the principle remains the same - oldest shares out first under FIFO.