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Newcastle Investment Corp. Message Board

  • nschwartz_99 nschwartz_99 May 20, 2013 11:27 AM Flag

    Cost basis of NRZ shares issued to NCT holders. Like your ansswers.

    I posted this earlier and I don't recall seeing anyone with an explanation for this. I've called NCT inivetor relations twice without answer and I emailed them this AM. The May 6 letter from NCT to its shareholders states:

    P. 70
    “Tax Basis and Holding Period of New Residential Shares Received by Holders of Newcastle Stock
    A Newcastle stockholder’s tax basis in shares of New Residential common stock received in the separation
    generally will equal the fair market value of such shares on the date of the separation, and the holding period for
    such shares will begin the day after the date of the separation.”

    Question: is not the fair market value of NRZ shares the opening first day trading price of $6.55 per share (established in the prior days WI trading)? If so, then this is the cost basis of our NRZ shares. Scottrade, and I asusme your other brokers, have diviided our total original cost basis in NCT shares with 54.4% of the original cost basis in NCT going to NRZ and 45.6% of total original cost basis remaining in NCT shares. The cost basis using this calculation would be different for every stockholder depending upon their cost of orignal purchases in NCT. In one of our accounts this worked out to $3.0179 for NRZ and $2.5281 for NCT, obviously not $6.55 per share.

    So how did NCT arrive at distributing the cost basis the way they did in light of their letter to shareholders?


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    • Previous posts have already explained how this works. Here it is.

      The cost basis of NRZ will equal its FMV because it was a taxable distribution. That does not mean you reduce your cost basis in NCT prorate!

      If we assume the FMV of NRZ is $6.55, then that amount will need to be broken out as follows:

      Dividend = taxable to recipient
      return of capital = not taxable, but reduces basis of NCT stock
      any amount in excess of basis = capital gain

      So for example, if $4.00 is a dividend, and your basis in NCT stock is $5.00 then the following is true.

      $4.00 is taxable
      $2.55 is a return of capital and reduces your basis in NCT stock to $2.45

      Hope this helps. By the way, I do not believe the taxability of the NRZ distribution can be determined until the end of the tax year.

    • Relax. You'll get a letter, probably very shortly, explaining everything to you. Is this the first 'spinoff' you've been involved with, and why do you need the information right this second? If you're a 'day trader' that's one thing but then you wouldn't care.

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