How to Adjust Cost Basis After a Merger

When two companies merge, it can affect the cost basis of the shares you own. Here's how you can adjust your cost basis after a merger:

1. Determine the terms of the merger: Find out the details of the merger, such as the exchange ratio or cash payment that was offered for each share of the acquired company.

2. Calculate the adjusted cost basis: Once you have the terms of the merger, you can calculate the adjusted cost basis for your shares. This is the cost you originally paid for your shares, adjusted for the value of any stock or cash you received as part of the merger.

For example, if you owned 100 shares of Company A at a cost of $50 per share, and Company B acquired Company A in a stock-for-stock merger with an exchange ratio of 1.5, you would receive 150 shares of Company B. To calculate your adjusted cost basis for the new shares, you would multiply your original cost per share by the exchange ratio: $50 x 1.5 = $75.

So your adjusted cost basis for the 150 shares of Company B would be $75 per share. If you received any cash as part of the merger, you would add that to your adjusted cost basis as well.

3. Keep records: Make sure to keep detailed records of the merger and any adjustments you make to your cost basis. This will be important for tax purposes when you sell your shares in the future.

4. Consult a tax professional: If you're not sure how to adjust your cost basis after a merger, or if you have any other questions about how the merger will affect your taxes, it's a good idea to consult a tax professional or financial advisor. They can help you make sure you're making the right adjustments and staying in compliance with tax laws.