How to Calculate Cost Basis After a Spin-Off

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Cost basis is the total amount that you paid for an investment, such as a stock. A spin-off occurs when a company divides itself into two or more pieces. If you own stock in a company that has a spin-off, the cost basis you have in the original company is divided amongst the resulting divisions. To calculate your cost basis in the now-separate entities, you must allocate your original cost basis in the same proportion that the company assigns to the resultant companies.


Step 1

Locate your cost basis for the original company. This is the total amount you paid for the original stock, including any fees or commissions charged by your financial services firm.

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Step 2

Record the closing prices of the two (or more) stocks as of the first day the spin-off traded as an individual company.


Step 3

Add the closing prices of the mother company and the spin-off.

Step 4

Calculate the proportion of total combined share price represented by each individual company. For example, if the mother company stock closes at a price of $60 and the spin-off company closes at a price of $40, the combined share price is $100. Of this amount, the mother company comprises 60 percent while the spin-off company represents 40 percent.



Step 5

Multiply the individual stock proportions by your original cost basis. If your original cost basis was $120 per share and the spin-off receives a 40 percent cost basis allocation, the net cost basis for the spin-off will be $48. The remaining $72 in cost basis is allocated to the original company.


In most cases, the original company will provide shareholders with an allocation factor for the cost basis in the new spin-off.

A spin-off is usually a non-taxable event.

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