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How to Adjust Cost Basis After a Merger

If in your taxable account, you hold stock in a company acquired by another company in a merger, you need to adjust your cost basis to compute capital gains or losses. Merger considerations may involve cash only, stock of the acquiring company, or a combination of stock and cash (also known ascash to boot). You must calculate your original cost basis for the stock and the cash proceeds you receive after completion of the merger.


As an example, suppose that on Jan 1, 2010, you bought 200 shares of Company A for .49 per share. On Jan 1, 2013, a merger is declared, in which Company A is acquired by Company B, with the following three options for each share of Company A you own: (i) in cash, (ii) 1.049 shares of Company B or (iii) a mix of in cash plus 0.5245 shares of Company B, subject to proration, which means shareholders electing the oversubscribed option of either cash or stock will get the under-subscribed option instead, on a prorated basis. You elect all cash, but because of over-subscription to the cash option when the merger is completed on June 1, 2013, you end up with 98 shares of Company B, 97.18 cash, and .72 "cash-in-lieu" of shares.

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    I have the cost basis of a stock that was merged with another stock. My stock was absorbed. I now have stock in the new stock. If I sell the new stock, do I use my original cost basis?
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Unanswered Questions
  • What name is written if my company has changed names?
  • In Step 7 to determine Cost Basis for all cash - what happens if you make a loss - I went through a similar marger in October 2015 and I am being told that you cannot write off a loss.
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  • Remember to add any commissions and fees to your cost basis, and subtract any commissions and fees from your proceeds.
  • Go to the company's Investor Relations website to look for any cost-basis or merger information.
  • If possible, elect the all-stock option in merger considerations in order to minimize income taxes, especially if your investment is held less than a year. Short-term capital gains tax can be quite high.
  • Pay attention to brokerage fees. Some brokerage firms might charge you for voluntary elections in corporate reorganizations such as mergers. If that is the case, you may be better off making no election and accepting the default option.
  • It is very easy to compute capital gains and losses after all-cash mergers: simply subtract your original cost (including any commissions paid) from the total cash proceeds received (less any commissions or fees paid). If the result is positive, you have a gain; if negative, a loss.





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Date: 02.12.2018, 07:00 / Views: 74255