“I held the shares for over 1 year and I have sold both batches of shares. How do I figure the cost basis and capital gains on the sales?”----> After a spinoff, you own stock in two different companies. If it is a tax-free spinoff , you have to allocate the cost basis you had in the original parent company to the two stocks you now own--the parent and the new spinoff. To illustrate, assume that you owned 100 shares of XYZ Corp which you purchased on 7/1/2004 at $50 per share for a total cost of $5,000.00. On 7/1/2006, XYZ Corp spun off shares their subsidiary ABC Company to all of their shareholders at a rate of 1 share of ABC for every share of XYZ. You received 100 shares of ABC Company. XYZ announce on their website under the "Investor Relations" tab that the allocation of cost basis to be assigned to the shares of ABC was 7% of your cost basis for XYZ. This was determined by the relative market values of the trading prices for ABC and XYZ after the shares started trading independently. Your cost basis for 100 shares of ABC is therefore 7% of $5,000.00, or $350.00 with an acquisition date for holding period purposes of 7/1/2004 ,NOT 7/1/2006. Your adjusted cost basis for 100 shares of XYZ becomes the remainder, $4,650.00, $5K-$350after deducting the cost allocation for ABC from your original purchase price for XZY. Your acquisition date remains as 7/1/2004. You can also audit the percentages that the company is reporting. Be careful to use the stock market trading prices for the day AFTER the spinoff. This is different from the first day of trading for the spinoff stock. Spinoff stocks usually start trading a few days or weeks before the actual distribution date on what is called a "when issued" basis. This gives the market a chance to look at the fundamentals of the stock and allows price discovery to occur in an orderly manner before the actual distribution date. You are allowed to use the opening price, the average price, or the closing price on the first day of separate trading. Most people use the closing price.
“I had been buying shares of the original company for years (at $100 per month). I was hoping I don't just claim 15% of the total of the two sales and pay that?”---> Sometimes a spinoff is a taxable transaction where taxable income is reported on your Form 1099. In this case, your cost basis in the spinoff shares is NOT an allocation of a portion of your cost basis in the parent company. Instead, your cost basis is the amount of taxable income that was reported to you and your holding period (acquisition date) starts on the day you received the spinoff shares. How do you know which kind of spinoff you received? You will also know it was a taxable spinoff if you see dividend income reported on your year-end Form 1099 as of the date of the spinoff. Be careful to note that sales proceeds reported for cash-in-lieu of fractional shares does not mean that it was a taxable spinoff.