What is the cost basis for stock never purchased? MetLife converted to stock then split this year into Brighthouse, but no partial shares , so received value of partial?

[AUTigerAM]

MetLife Insurance policy converted to stock several years ago, then split this year into M/L & Brighthouse.  Issued 1 share B/H for every 11 shares of M/L, but no partial shares, so received value of the partial share, and it's reported on 1099-B, but there is no cost basis, and I have no idea how to calculate since I never purchased the stock.

[TomYoung · Accepted solution]

If you received your MetLife stock due to their demutualization then the IRS's position is that your basis in that stock is $0.  Not everybody agrees with that and courts have split on the question so you might want to do some research to determine how you want to handle this.

The spinoff of Brighthouse was a tax free spinoff and when a company is spun out of another company in a tax free spin off then you allocate your basis in the original stock between your original holdings and your new holdings in proportion to their values immediately after the spin off.  The recommended percentage allocation in this case is 10.3635%, so multiply 10.3635% times your basis in MetLife and that's your basis in all the Brighthouse stock you received.  To calculate the basis of the fractional share you sold the equation is:

 (10.3635% x basis in MetLife) divided by (ALL shares - including fraction - received) times (fraction of share sold)

Further, when a company is spun out of another company in a tax free spin off then the holding period from the "old" stock carries over to the "new" stock, so your holding period also dates back to the year 2000.

So now you have all the information you need to enter the sale, the same information that shows up for every single sale of a security on Form 8949.

1. Description of what was sold: Brighthouse Financial stock.  (You don't need to indicate how many shares but if you want to, add that in.)
2. Date of sale: 8/7/2017
3. Proceeds of sale: Cash in lieu amount
   
4. Cost basis: per equation
   
5. Date acquired: 4/7/2000

Tom Young

[AUTigerAM]

Thank you very much for the extremely prompt and detailed description.

[catsmith123]

I am getting ready to sell common stock in MetLife and Brighthouse financial.  This stock was acquired when Metlife Insurance demutualized in the year 2000.  According to an article titled "Tax Tips:  Demutualized Insurance Companies", the stock basis should be $14.25 per share.  Read the article at:  https://www.thestreet.com/story/12805404/tax-tips-demutalized-insurance-companies.html

According to Intuit, "the spinoff of Brighthouse was a tax free spinoff and when a company is spun out of another company in a tax free spin off then you allocate your basis in the original stock between your original holdings and your new holdings in proportion to their values immediately after the spin off.  The recommended percentage allocation is in this case is 10.36735%, so multiply 10.36535% times your basis in MetLife and that's your basis in all the Brighthouse stock you received.  To calculate the basis of the fractional share you sold the equation is:  (10.3635% x basis in MetLife) divided by (ALL shares - including fraction - received) times (fraction of share sold).  Further, when a company is spun out of another company in a tax tree spin off then the holding period from the "old" stock carries over to the "new" stock, so your holding period also dates back to the year 2000.  Reference:  https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/what-is-the-cost-basi...

[HIHIHI153]

Hello,

I am in the same position as you were. I sold my shares in brighthouse Financial, but it shows 0 cost basis. May I ask what you put down for your cost basis? Did you put 0, or use $14.25 per share or the equation provided by Tom:

(10.3635% x basis in MetLife) divided by (ALL shares - including fraction - received) times (fraction of share sold)  (How do I find out the basis in Metlife?)

Sorry  for bringing back this thread, but I would greatly appreciate the help.

Best,

James

[JamesG1]

Here is an example.

If you bought 11 shares of stock A for $110, your basis in that investment is $110.

Stock A spins off another corporate entity on the basis of 1 share of stock B for every 11 shares of stock A.

Now you have: 

Stock A                 11 shares             $100.83                 1/12 X $110 = $.083 X 11 shares

Stock B                 1 share                 $9.17                     1/12 X $110 = $.083 X 1 shares

                               12 shares             $110

Your basis still remains $110 for the total investment.

The stock split is not a taxable event until the shares are sold.  But you use the adjusted basis computed as above.

See this.

Why did MetLife spinoff Brighthouse?

In the short term, volatile trading is expected for Brighthouse as many MetLife shareholders sell their new shares because they won't be paying dividends. The actual conversion took place late Friday, when MetLife common shareholders received one share of Brighthouse common stock for 11 MetLife shares.

[saratogaheart]

My Google search on this topic, revealed two "facts":

1. It was determined that the MetLife stock had a Cost Basis of $14.25/share in April 2010.

2. The Federal Court of Appeals ruled in 2008 that IRS cannot impose a zero Cost Basis on MetLife stock after their demutualization in April 2000.

[Confusedreturn]

HI,

Do you know the name of the court case and if it has been super seceded?

Thanks!

[DaveF1006]

Yes, check this link for more information. Here is another credible link.

Basis of stock received in insurance demutualization is zero