What are the tax rules for this situation?

Question

Motorola spun off Freescale. Freescale was later taken private and I was sent a check buying my shares. How is the tax calculated on the money that I received?

Answer 1

Sales proceeds less cost of acquisition = gain. If it was owned for over 1 year, it's a long-term gain taxed at a lower rate. If it was owned less than 1 year, it's short-term capital gain and is taxed as ordinary income.

If you owned the Motorola shares and the spun off shares for a total of at least 1 year, it's a long-term capital gain even if the spun-off shares were held less than one year unless you acquired any additional shares of the spin-off at the time of the spin-off.

You should have received statements that outlined how the costs were allocated.

Answer 2

At the time Motorola spun off Freescale, you need to allocate your basis in Motorola between Motorola and Freescale. You should have received information from Motorola that indicates how much of your cost goes to each.

Your gain on Freescale will be the difference between the check you received and the amount of basis that you allocated to Freescale.

Your holding period for Freescale will include the time that you held Motorola before the spinoff.