tax question on spin offs and acquisitions
November 22, 2005 10:31 AM Subscribe
capital gains question about stocks that are spun off or purchased
lets say i own company ABC, and am long. then ABC gets bought by DEF. So all my stock in ABC is replaced by some amount of DEF. Am I long on DEF?
Lets say DEF spins off company GHI. Am I long in GHI?
lets say i own company ABC, and am long. then ABC gets bought by DEF. So all my stock in ABC is replaced by some amount of DEF. Am I long on DEF?
Lets say DEF spins off company GHI. Am I long in GHI?
BTW, you're not "long on DEF," or "long in DEF," you're "long DEF." No prepositions.
posted by Kwantsar at 10:42 AM on November 22, 2005
posted by Kwantsar at 10:42 AM on November 22, 2005
And since you sort of asked, most takeover/merger related share exchanges are tax-free. Your basis remains intact.
If the merger isn't tax-free to shareholders, the transfer agent will tell you.
posted by Kwantsar at 10:43 AM on November 22, 2005
If the merger isn't tax-free to shareholders, the transfer agent will tell you.
posted by Kwantsar at 10:43 AM on November 22, 2005
...and your basis or cost for tax purposes is the original cost of your ABC stock after transaction one.
You figure the basis of transaction two by determing what fraction of DEF's business is represented by GHI and multiplying that number by the original cost of ABC. The remaining basis stays with DEF. Don't forget to deduct expenses and commissions from your cost and add them to your proceeds.
posted by cyclopz at 10:53 AM on November 22, 2005
You figure the basis of transaction two by determing what fraction of DEF's business is represented by GHI and multiplying that number by the original cost of ABC. The remaining basis stays with DEF. Don't forget to deduct expenses and commissions from your cost and add them to your proceeds.
posted by cyclopz at 10:53 AM on November 22, 2005
Oops...add expenses and commissions to cost and deduct from proceeds...I'm financially dyslexic today...
posted by cyclopz at 11:19 AM on November 22, 2005
posted by cyclopz at 11:19 AM on November 22, 2005
Oh, and regarding cyclopz's answer, he's right, but usually the company calculates the ratio for you, and you simply apply it.
posted by Kwantsar at 12:26 PM on November 22, 2005
posted by Kwantsar at 12:26 PM on November 22, 2005
yup...your brokerage firm's reorg department will typically forward a letter with the details.
posted by cyclopz at 1:38 PM on November 22, 2005
posted by cyclopz at 1:38 PM on November 22, 2005
dumb question... does the same thing apply if you have a short position?
also to the OP... you didnt expect to be short either of the stocks did you? or did you mean that you were already in long-term capital gain territory?
posted by joeblough at 4:23 PM on November 22, 2005
also to the OP... you didnt expect to be short either of the stocks did you? or did you mean that you were already in long-term capital gain territory?
posted by joeblough at 4:23 PM on November 22, 2005
This thread is closed to new comments.
However, remember that in some takeovers the owners of the old company get cash, rather than shares.
posted by Kwantsar at 10:41 AM on November 22, 2005