1. What Is Stock Spinoff Cost Basis?

Stock spinoff cost basis refers to the allocation of the original investment cost between the parent company shares and the spun-off shares. This calculation is essential for accurate tax reporting when selling either the parent company shares or the spinoff shares.

2. How Does The Calculator Work?

The calculator uses the spinoff cost basis formula:

Where:

• \( Original Basis \) — Original cost basis of the parent company shares ($)
• \( Spin Shares \) — Number of spinoff shares received
• \( Parent \) — Number of parent company shares held

Explanation: This formula proportionally allocates the original cost basis between the parent company shares and the spinoff shares based on their relative quantities.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains or losses when selling investment securities. Proper allocation ensures correct tax reporting and compliance with IRS regulations for corporate spinoffs.

4. Using The Calculator

Tips: Enter the original cost basis in dollars, the number of spinoff shares received, and the number of parent company shares held. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is cost basis allocation necessary for spinoffs?
A: The IRS requires investors to allocate their original cost basis between the parent company shares and the spinoff shares to accurately calculate capital gains or losses when either is sold.

Q2: How do I find the original cost basis?
A: The original cost basis is typically the purchase price of the parent company shares, including commissions and fees, as recorded in your investment records.

Q3: What if I received fractional shares in the spinoff?
A: The calculation works the same way with fractional shares. Include the exact fractional amount received in the "Spin Shares" field.

Q4: Does this calculation apply to all types of spinoffs?
A: This formula applies to most tax-free spinoffs under IRS Section 355. Always consult a tax professional for specific situations.

Q5: How does this affect the cost basis of my remaining parent company shares?
A: The remaining cost basis for parent company shares is calculated as: Original Basis × (Parent Shares / (Parent + Spin Shares)).