Cost basis for cash in lieu received through spin-off

[edchen]

I received cash in lieu after acquiring shares and selling the fractional shares through a spin-off. In the Turbotax interview, it wants me to enter the cost basis for the cash in lieu transaction. The way I understand to calculate the cost basis after reading through a bunch of threads but I wanted to confirm is to:

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.

So for example, I 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*0.3 = $1.08

Is this correct or did I miss something? Also if I sell shares in the future of the original stock or spin-off, do I have to adjust the cost basis like this as well?

[Mike9241]

$50 s/b $75 

spin-off stock was worth $75

FMV of the spin-off stock = 12.3 * $50 = $922.50

or just enter $0 for the cost.

was this a private company or publicly owned stock?  so the sale of frac. share was reported on 1099-B.  if you got a 1099-B you'll have to look at future statements to see if the cost basis of both the original and spinoff have been adjusted to what you calculated. might take a month or two for the broker's statements to reflect that adjusted tax basis.

[edchen]

@Mike9241 this is publicly owned stock so the sale of the fractional share was reported on 1099-B. Thanks for the tip. I do see now they ended up adjusting the cost basis of the original stock whereas the spin-off stock took the value of what the spin-off stock traded at the first day of trading after the spin-off. Not sure how they calculated it, but the total cost basis of the original and spin-off stock doesn't match how much the original stock was purchased for.

[chitowncrystal44]

Same here. Cost basis does not match just like yours.