How do I report California capital loss when I sell stock acquired through tax free M&A? I paid original stock $1, received merger stock for $100, and sold it for $40.

[mpanic]

I purchased 1000 shares of company A for $1 per share.
Then company B acquired the company A through tax free merger for cash and stock deal.
For my original shares I received 200 shares of company B at FMV  $100 per share.
Since it was "tax free" merger, I don't have to pay any taxes until I sell the new company B stocks.

When I sold 100 shares of company B for $150 per share, I reported capital gain of $15000-$500=$14500


When I sell 100 shares of company B for $40 per share, do I report capital loss or capital gain?

If I have to report capital loss, how do I calculate it?
What's the cost basis for the new company B stock, as it was issued to me at the price $100 per share, and I sell it for $40 per share, but I only spent $1000 when I purchased the original company A stock?

[TomYoung]

I'm not sure why you've limited your question to the California income tax return as, usually, you face the same issue at the federal level.

Also, these questions that don't disclose the actual companies involved are simply impossible to answer definitively as the tax consequences depend very much on the actual structure of the deal.  That is, two deals that appear to be exactly the same on the surface can result in very different income tax accounting because of the "behind the scenes" deal structure.

"Then company B acquired the company A through tax free merger for cash and stock deal. "

Typically a merger or acquisition is at lease partially taxable to the shareholders who tender their stock to the extent that they receive cash in addition to stock.  Names of companies involved?

[mpanic]

Thanks for the reply TomYoung!

Here's the additional info I can share:

I owned stocks of the private company. It was acquired by the public company through tax free M&A. The deal was part cash and part stock. The stock was converted N:1 (i.e. for 10 Company A stocks I received 1 Company B stocks).

I did own both Federal and State taxes, but since California has different rules, I'm interested in figuring out if I have capital loss or capital gain when I sell the stock at the price that's lower from when the merger happened and I received the new Company B stock?

Thank you!