Spinoffs

What this video covers

• Why a spinoff is never free stock, and how the exam traps you into picking a zero-cost-basis answer
• How cost basis is split between parent and subsidiary using relative fair market value (FMV) immediately after the distribution
• The exact math: multiplying original basis by each company's percentage of total post-spinoff value
• Why a spinoff qualifies as tax-free under the Internal Revenue Code (IRC) provision, and what "no gain or loss recognized" means for shareholders
• The two big numbers for tax-free treatment: 80% of subsidiary stock distributed and 5 years of active trade or business for both companies
• How the parent company's holding period tacks on to the subsidiary shares from day one, with no calendar reset
• Why a shareholder can owe long-term capital gains on subsidiary shares sold immediately after the spinoff