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How do you compute the cost basis for the Altria spin off of Kraft?
Wiki User
∙ 15y ago
You must allocate the basis, or tax cost, between the shares of Altria and those of the spun-off Kraft. There are 2 information sources to help investors/taxpayers make this calculation. On the IRS Web site (irs.gov) look at Publication 550 (Investment Income and Expenses). It discusses corporate reorganizations. The Altria official website (see Related Links) discusses the spinoff in detail and includes information about how to calculate the basis of those shares. * First, lets look at how the Kraft stock was spun-off. For every share of Altria, shareholders were awarded .692024 shares of Kraft. * Second, you need to calculate the relative fair market values at the time you received the Kraft shares in order to allocate the basis. You should use the April 2nd (the day after the distribution) closing market price. Using the $68.22 closing price of Altria and $30.85 closing price of Kraft making the combined value of the two new companies $99.07. Using the above information we can calculate the following: ---- Example using 100 shares of the original Altria New Altria Shares 100 x 68.22 (4/2/07 closing price) = $6,822.00 New Altria percentage of total fair market value $6,822.00/$8,956.89 = 76.16% ---- New Kraft Shares 69.2024 x 30.85 (4/2/07 closing price) = $2,134.89 New Kraft percentage of total fair market value $2,134.89/$8,956.89 = 23.84% ---- Now to determine your personal cost basis for the new Kraft shares simply multiply the total cost of your original Altria purchase by 23.84% Note: In a spin-off situation, you should always receive info from the divesting corporation with instructions on how to allocate basis between the new and old stocks. Hold onto that until the limitations period expires for the year in which you sell or otherwise dispose of the stock in a taxable manner. This is typically three years from the date the return was filed or due. The link to the Altria Group Shareholder Tax Basis Information can be found in Related Links and should be printed and returned with your 2007 federal income tax return.
Wiki User
∙ 15y ago
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