This is an alternative for calculating the spinoff as a portion of the underlying original stock.
1. Find the closing prices of the original stock and the spin-off stock at the end of the first trading day after the spin-off.
2. Find the FMV of the original stock and spin-off stock at that time by multiplying the respective prices with the shares held.
3. Take the FMV of the original stock and spin-off stock and calculate the percentage that the spin-off stock is worth relative to the combined value of the original stock and spin-off stock.
4. Multiply the portion of the spin-off stock's value by the cost basis of the original stock to get the cost basis of the spin-off stock.
5. Multiply the fractional share sold by the cost basis of the spin-off stock to get the cost basis of the cash in lieu.
For example, If you bought the 123 shares of the original stock at $100 and received 1 share of the spin-off stock for every 10 shares of the original stock that I held. On the first day of the spin-off trading, the original stock was worth $200, and the spin-off stock was worth $75:
FMV of the original stock = 123 * $200 = $24600
FMV of the spin-off stock = 12.3 * $75 = $922.50
% value of the spin-off stock = $922.50 / ($24600+$922.50) = 0.0361
Cost basis of spin-off stock = 0.036 * $100 = $3.61
Cost basis of fractional share = $3.61 * 3 = $1.08
See original post.
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