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From: D. Blair Favrot on 7 Apr 2008 19:30 How is the allocation of cost basis made upon a spin off? blair Favrot
From: Sharx35 on 8 Apr 2008 00:14 If you can afford shares, you can afford to pay for professional advice--call a professional OR, GOOGLE it. "D. Blair Favrot" <dbfavrot(a)cox.net> wrote in message news:47FAAEA8.FE1BCEE4(a)cox.net... > How is the allocation of cost basis made upon a spin off? > > blair Favrot >
From: Eric on 8 Apr 2008 10:47 Go to the web sites of the companies involved. Usually the company that does the spin off will explain on its stockholder page. Or else wait for mailing that you will receive. Eric "D. Blair Favrot" <dbfavrot(a)cox.net> wrote in message news:47FAAEA8.FE1BCEE4(a)cox.net... > How is the allocation of cost basis made upon a spin off? > > blair Favrot >
From: R. C. White on 8 Apr 2008 12:24 Hi, Blair. This topic comes up at least a couple of times a year here, so the archives are rich with information about spin-offs. The simple explanation is that cost of the original shares is allocated on the ratio of FMV (Fair Market Value) of the old and new shares immediately after the transaction. Quicken's wizard (formerly called Easy Actions) for Corporate Securities Spin-Off handles it correctly, but still (in Q2008 Deluxe) has a long-standing misleading caption that causes confusion. Where it asks for "Cost per old share ___ (post spin-off)" and "Cost per new share ___", it should ask for FMV per share immediately after the spin-off. "Cost" of the shares is what we are trying to determine, so we don't know those numbers until the calculations are done. Everybody knows the FMV of the old shares before the spin-off, but nobody knows until "the morning after" how much of that value is represented by the assets that are about to be spun off. After the transaction, the prices at which the deflated shares of the original company trade, and the prices paid for the new shares, can tell us what percentage of the original value was attributable to the assets spun into the new company. If the shares of the spun-off company sell for $20 and the old shares now sell for $80, we can calculate that 20% of the value of the previous whole package was attributable to those shares. So we allocate 20% of what we paid for our original shares to the shares in the new company that we receive, reducing our basis in our original shares to 80% of what we actually paid for the whole package. That simple example assumes a 1-for-1-share spin-off. If we receive 5 shares of the new company for every 1 share that we hold in the old company, then we must multiply the per-share FMV of each new share by 5 to see how much of the original value is represented by the spun-out assets. Obviously, nobody can do anything but guess about these ratios until some actual transactions have taken place AFTER the deal. And there are several different ways to determine those FMVs (opening transaction on the day after, closing quote that day, average of high and low - and others). But the parent company's lawyers, accountants and investment bankers will produce their version within a day or two after the transaction and we can be pretty sure that the IRS will not disagree if we use those values. As Eric said, all the details we need - except how to enter it in Quicken - will probably be on the parent company's website in less than a week, probably under Investor Relations or some similar heading. (We can probably help you find the page if you tell us the name of the company.) In Quicken, just follow the steps, making sure to enter the per-share FMVs, not the cost, of old and new shares, and Quicken should do the rest. If you held multiple lots of old shares, Quicken will adjust each of them automatically. The only caveat is that, if you look back to a historical point before the spin-off, you will see shares of a spun-off company that didn't even exist at that time. This is because the tax rules treat the new shares as though they were acquired when the original shares were acquired. Just remember to watch out for this tax code provision which can't easily be handled in a program like Quicken. Remember that I've been retired for over a dozen years, Blair, and tax rules change daily, so be sure to check with your own CPA to be sure that my explanation is still accurate and current. RC -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) rc(a)grandecom.net Microsoft Windows MVP (Currently running Quicken 2008 Deluxe in Vista Ultimate x64 SP1) "D. Blair Favrot" <dbfavrot(a)cox.net> wrote in message news:47FAAEA8.FE1BCEE4(a)cox.net... > How is the allocation of cost basis made upon a spin off? > > blair Favrot
From: Bob L on 8 Apr 2008 14:42
"D. Blair Favrot" <dbfavrot(a)cox.net> wrote in message news:47FAAEA8.FE1BCEE4(a)cox.net... > How is the allocation of cost basis made upon a spin off? > > blair Favrot > Which company? You should be able to find information online at the company website. |