Hi, just started to do my 2013 tax and was a little bit shocked at the ordinary dividend that I received from NCT and the tax that I owed. Based on my understanding, the big chunk comes from the 05/06/2013 distribution, where for each share of NRZ stock distributed ($6.89), $2.33 is considered as ordinary div, and $4.55 is considered ROC. Therefore, I have to pay ordinary div tax for this $2.33 part that I recieved, even I have NOT sold any of my NRZ or NCT stocks. Correspondingly, my NRZ stock's cost basis is set to be $6.89, and my NCT cost basis is reduced by $4.55.
Thanks for the replies. I don't know why NCT count that $2.33 part as ordinary dividend. Aren't most spin-off supposed to be tax-free? Since they classify it as ordinary dividend, this means that I have to pay tax for it regardless, there is no way for me to offset that part, even if I sell my NRZ shares at a loss.
That's correct but the company has stated uncounted times that the spin off would be a taxable event to the shareholders. Say thanks that the entire $6.89 wasn't taxable as a dividend. Remember too that your NRZ shares will have a cost basis of somewhere north of $6.00, but the shares are already cost free to you so there's the silver lining.