Personal Finance & Money Asked on April 26, 2021
*Disclaimer: This question is regarding taxes in the United States of America.
I own stock in a company that announced at the end of 2020 that it will be spinning off a portion of its business later in 2021. This puts me in a bit of a predicament, because I really like the parent company and I’m glad they are spinning off the part of the business that I was less excited about and also is in long term decline.
By the time the spinoff occurs I will be long in the parent company stock and I want to continue to hold onto the parent stock. However, I have little interest in the spinoff company and don’t desire to hold onto the stock of that company, which will be issued to me upon the spin off completing.
My question: If I am long the parent stock at the time of the spin off will I automatically be long the spin off company or will the clock restart for me and I’ll be short that stock, because it is a completely new company?
Generally: depends.
One way: You get the same percentage ownership on the new company as on the old one - not necessarily the same number of shares, but the same tiny percentage.
Another way: They form a new company, the old company owns 100% of the new company and sells some of the shares on the open market or to outside investors. Then you are still long the new company THROUGH the old company.
Answered by TomTom on April 26, 2021
When the spinoff occurs, you will be long shares in the parent company and long shares in the spinoff. You might receive the same or a different number of spinoff shares.
The acquisition date for the spinoff stock will be the same as the acquisition date for the parent stock. There will be no short positions involved.
If you choose to sell the spinoff shares, your broker should provide the adjusted cost basis of each position resulting from the spinoff. If not, start googling.
Answered by Bob Baerker on April 26, 2021
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