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Old 03-04-2011, 07:54 AM
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capital gains and cost basis with a spin-off

The company I originally worked for spun off a division and I now work for that "new" company. Before the spin-off I owned shares in the original company. As part of the spin-off I received the same number of shares of the new company as I originally had of the original parent company. I ended up owning the same number of shares in both now.
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?
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?


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Old 03-04-2011, 05:18 PM
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Stock Spinoff

How do I figure the cost basis and capital gains on the sales? -->

When a company spins off a division and you recieve shares in the new company relative to the number of shares originally purchased, you must split the original basis between the old and new shares. Most company websites will have information on any stock spinoffs they conducted, including what percentage of your basis should be assigned to the old/new shares. Alternately, there are a couple of websites that have calclulators for this sort of thing, with data on many companies. Try this one:

Spinoff Calculator

Don't forget to include comissions (if any) in your cost basis (which are also split if the were pre-spinoff).

I was hoping I don't just claim 15% of the total of the two sales and pay that? ->>

From a practical point of view - Since you held all of the shares for more than a year and have sold all of them (in the same year?), you should pay no more than the maximum long-term capital gains (LTCG) tax rate (5% or 15% depending on your income) on the difference between total sales price and cost basis for both batches. Schedule D requires you to record the individual sales so you still have to split the basis as noted above - just make sure you don't pay more tax than:
total sales price (both batches) - total basis (amount you paid in to acquire shares, including commissions) * LTCG rate



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Old 03-05-2011, 03:35 AM
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” How do I figure the cost basis and capital gains on the sales?”--> In a spin off the existing shareholders get new shares of the spun off division and thus the existing shares of the parent company are worth less because they no longer have the revenues of the spun off division; the company needs to inform you on how to allocate your cost basis to the spun-off shares. To figure the basis, assume that you bought 100 shares of A for $3,000. A spins off one division of the company as a new company, B. You received one share of B for every two shares of A you owned. The first day B trades after the split. A opens for $20 per share and B opens for $10 per share. That makes the value of your 100 A shares $2,000 and the value of your 50 B shares $500. The totals $2,500. A represents 80% of that amount and B is 20% of that amount. That makes your cost basis for your A shares 80% of $3,000, $2,400 or $24 per share. Your cost basis for your B shares is 20% of $3,000, $600 or $12 per share.
“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?”----> There are generally no tax consequences because you haven’t received anything new – you always owned stocks of the old one, now it is just a separate company. To avoid taxes, it can spin off the company to its existing stockholders; In fact, , a spin-off or other divisive reorganization is the only way a company can distribute appreciated property to shareholders without incurring a corporate-level tax.



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