If you were holding VOD shares before the VZ buyout of their 45% stake of Verizon Wireless, you might notice an unrealized capital loss now. This is due to the 6/11 reverse split that was received.
I’ll show you how my new cost basis was calculated and you should be able to do the same for your shares to figure out your new cost basis.
On 11/07/12 I originally purchased 100 shares of VOD for a total of $2705.85 ($26.969/share + $8.95 commission).
Multiply your original purchase by 6/11 to get the new amount of shares
Per the recent buyout agreement, those 100 shares turned into 100 x 6/11 = 54.545454… shares on 02/24/14.
The fractional share portion of .545454.. was paid as cash in lieu of $22.28 or $40.85/share that I received on 02/28/14.
Divide your original cost basis by your new amount of shares
My cost basis per share after the reverse split but before the cash in lieu payment was: Original Cost/New Share Count = $2705.85/54.545454 shares or $49.607/share.
Find your cash in lieu cost basis for the fractional shares
So the .5454.. shares should reduce my cost basis by $49.607 x .545454 = $27.06.
Subtract to get your new original cost basis
So now my original cost basis is: Original Cost – Cash In Lieu Payment =$2705.85 – $27.06 = $2678.79. I verified this is exactly what is now listed on my Schwab brokerage page.
Calculate your new per share cost basis
My per share cost basis is now $2678.79/54 shares = $49.61/share. This now shows up as an unrealized capital loss which is ok by me. I don’t plan on selling shares anytime soon, but if I did, I would get to write off this loss.
As for tax treatment of the cash in lieu and the cash payment , I asked Charles Schwab:
“The guidance we have been given is clients that received cash and VZ dividends will be taxed as cash with a basis of $0.00.”
The rep said this hasn’t been fully verified by VOD yet though.
That is not good news about the dividend payments if that is true. This means it would probably get reported on a 1099 form and be fully taxable.
There was an article from Barron’s last year that said these payments would be qualified dividends but I have to think my broker has a better understanding. I guess I’ll soon find out. I know I’m not thrilled about paying regular taxes on these distributions.