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02-12-2015, 10:46 AM
 Junior Member Join Date: Feb 2015 Posts: 1
spin off

I purchased stock in a company in 2001. There was a spin off in 2011. In 2014 the spin off company was purchased by a private concern who in turn bought back all of the stock. Is the cost basis the day of the spin off?

02-12-2015, 10:00 PM
 Moderator Join Date: Oct 2010 Posts: 5,258
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 Originally Posted by kujive I purchased stock in a company in 2001. There was a spin off in 2011. In 2014 the spin off company was purchased by a private concern who in turn bought back all of the stock. Is the cost basis the day of the spin off?
The first step is to figure out how much of what you paid for the company in 2011 is attributed to THE COMPANY SPUNED OFF. One method is to take the closing share prices of each stock and come up with an allocation. shareholders in distribution-type spinoffs are taxed on gains or losses in the tax year in which they sell the shares. To calculate tax basis in the spinoff and parent, you must allocate your basis in the purchase of shares in the original company pro rata across the two resulting companies, based on the relative FMV of the parent and spinoff immediately after the separation. For example, suppose you buy one share of firm A at \$100; A spins off Company B; and each share of A receives a distribution of 4 shares of B. Immediately after the spin, suppose the fair market value is \$80 for A shares and \$10 for B shares. The total market value of your holding is now \$120 (one A at \$80, and four B’s at \$10). So your allocated basis in A would be 100*80/120, or \$66.67; your basis in B would be 100*40/120, which is \$33.33 for the four B shares, or \$8.33 per B share.

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