Calculating adjusted cost basis after Kyndryl spin-off

[ErnieS0]

Your cost basis is $2.90 ($3.80 x 0.76360). You received cash in lieu because IBM gave you whole shares of Kyndryl as part of the spinoff but didn't give you fractional shares. Those were paid out in cash to make things simple for everyone.

For more information on calculating your basis see Tax Basis FAQ

[Gaypana]

Thank you! That makes sense to me. 🙂

[kohster1]

I'm in the same boat as Gaypana - we got $8.18 cash in lieu for .4 shares of Kyndryl.  If my original cost basis for IBM shares was let's say $28, I'm confused as to why my cost for those .4 shares is .4 * $28.  Wouldn't the cost basis be .4 * whatever I calculated my Kyndryl cost basis to be per share using the calculations in form 8937 as the original poster talked about?

And then does this count as a long or short term transaction if I got the original IBM shares back in like 2009?

Thanks for helping to clear up my confusion!

[RobertB4444]

If you paid $28 originally that was your cost basis.  Then you will have to create your adjusted cost basis after the split.  And that is what you would multiply times .4.

Anything older than a year and a day is long term.

@kohster1

[kohster1]

Thanks @RobertB4444 for taking the time to reply.  Forgive me if I'm just not getting it, but when you say create my adjusted cost basis after the split, are you confirming my thought that I need to calculate my cost basis for the IBM and Kyndryl shares, and then multiply the Kyndryl cost basis by .4?  

So to put it in concrete terms, original cost basis of those IBM shares for me was $28.  Applying the calculations from that form 8937, we allocate 95.8% of the cost basis to the IBM shares and 4.2% of the cost basis to the Kyndryl shares.  So total cost basis of the 227 IBM shares is $6356.  As part of the spinoff, I get 45 shares of Kyndryl, which means that cost basis is 4.2% of the fair market value, approximately $263.63.  So that makes the Kyndryl per share cost basis be $263.63/45, or $5.86?  And then I multiply 5.86 by .4 to get a cost basis of the fractional Kyndryl share of $2.34?  And that means that the $8.18 that I got as cash in lieu represents a capital gain of $5.84?  And that's a long term capital gain because I originally received the IBM shares more than a year and a day ago?

[kohster1]

And then even more confusion:

If I use an online calculator at https://www.costbasistools.com/spinoff/calculator.php and enter the following values:

Line 4: Purchase date of original stock: 12/1/2009

Line 8: Number of shares of original stock: 227

Line 9: Total cost of original shares: 6356 (227 shares * $28/share)

Line 10: Cash in Lieu received: $8.18

Line 11: Tax Status: 2 (taxable)

Line 12: Market value of share received on date of distribution: $26.38 (from form 8937, closing price of Kyndryl on 11/4/2021)

That form calculates cost basis of the fractional .4 share at $10.55, which means that the $8.18 represents a loss of $2.37.  So it seems like that calculator is somehow saying the cost basis of the share is based on the market value at the time of distribution, not the 2009 value of 4.18% of my original IBM shares?

[Tim2900]

You sound like an IBM lifer like my dad was. I just went through all of those old papers (including stock distributions reported on punch cards - seems like they used those for everything). I was looking for an answer to the Kyndryl question and found this thread. I don't have an answer, but just thought I'd say hi.

[Gaypana]

LOL. Hi to you too. I think I figured it out. I hope this thread helped.