The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: GM and RTHa Shares: Cost Basis||Date: 12/21/1997 12:55 PM|
|Author: KATinChicagoland||Number: 967 of 119749|
<<I am a little confused as to how to calculate the cost basis of the RTHa shares I have been given by GM as a result of the spin-off of Hughes.
My questions are:
1. What is the cost basis of the 310 Raytheon Class A Shares?>>
You will receive guidance on this from GM. Assuming this is a tax-free spin-off, your basis in your old shares will be allocated between old and new based on the relative fair market values at the time of the spin-off. For example, if the Raytheon shares you receive have a FMV equal to 8% of the total, and GM shares have a FMV equal to 92%, then for each lot of shares you will allocate the basis 92% to the GM shares you retain and 8% to the Raytheon shares you received.
<<2. Do I need divide the 310 into six lots, each with a different cost basis per share, to match the six purchases of GM I made; in order to segregate short from medium from long term gains?>>
Yes, you do this not only to segregate long-term from short-term, but also to segregate lots that have different basis per share.
<<3. If so, how's the math done?>>
Suppose 8% is the right number for relative value of the Raytheon shares. For each lot of shares, do the following:
Multiply your total basis in the lot by 92%. This is the basis you now have in your GM shares in that lot. Divide by the number of GM shares to get your basis per share.
The remaining 8% is your basis in the Raytheon shares that relate to that lot. That number of shares is the number of GM shares times .06377. To get the basis per share of the Raytheon shares in this lot, divide the total basis of those shares (8% of the original basis of the GM shares in the los) by the number of Raytheon shares.
This ignores the cash you received for the fractional share. I believe there's a special rule allowing you to treat this as a dividend to avoid complicated sale calculations, but that's dredged up from old memory.
KAT in Chicagoland
|Copyright 1996-2013 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|