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IRS Stock Spinoff Basis Formula:
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The IRS stock spinoff basis calculation determines how to allocate your original investment basis between the parent company stock and the spun-off company stock after a corporate spinoff. This is important for determining capital gains or losses when you sell either stock.
The calculator uses the IRS-approved formula:
Where:
Explanation: This formula proportionally allocates your original basis between the two stocks based on their relative fair market values immediately after the spinoff.
Details: Proper basis allocation is crucial for accurate tax reporting when you eventually sell either the parent company stock or the spun-off company stock. Incorrect basis calculation can lead to overpaying or underpaying capital gains taxes.
Tips: Enter the fair market values of both stocks immediately after the spinoff, plus your original cost basis in the parent company stock. All values must be positive numbers.
Q1: When should I use this calculation?
A: Use this calculation after a corporate spinoff to determine your new cost basis in both the parent company and spun-off company stocks for tax purposes.
Q2: Where do I find the fair market values?
A: The company will typically provide these values in their spinoff documentation, or you can use the closing prices of both stocks on the first day of trading after the spinoff.
Q3: What if I acquired shares at different times/prices?
A: You may need to calculate the basis separately for each lot of shares you owned, using the specific original cost basis for each lot.
Q4: Is this calculation accepted by the IRS?
A: Yes, this proportional allocation method is the standard approach accepted by the IRS for stock spinoff basis calculations.
Q5: What about fractional shares?
A: The calculation works the same way for fractional shares. You may receive cash in lieu of fractional shares, which has different tax implications.