How to Adjust Cost Basis After a Merger

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If you made money on your investment, you have to pay tax on the income made. In order to determine your tax, you must also determine the cost basis for your investment, which can change after a corporate action like a merger. In most cases, you don't need to adjust the cost basis of stock after a merger -- this is done for you in the restructuring of the stock. However, you will need to adjust the cost basis if the number of stock you own changes.

  • Determine the total number of shares purchased originally and the total purchase price. For instance, if you purchase 100 shares at a cost of $50 per share before the merger, the cost basis is 100 shares at $50 a share for a total investment of $500.

  • Read the merger announcement. In many cases a merger will not change the cost basis; however, if the merger is paid for with stock, or if the number of stock you own changes as a result of the merger, or if you are issued stock as a result of the merger, you will need to adjust the cost basis. The merger announcement will tell you the effect of the shares owned. For instance, assume the merger is resulting in two shares of the merged company issued for every one share you own.

  • Determine the new cost basis for the number of shares held. You have two shares for every one share you owned previously. The total number of shares you own is 200 and the total value of the shares is $20,000. The new cost basis is $20,000 divided by 200 or $100.

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