Taxable Spinoff

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DEFINITION of 'Taxable Spinoff'

A divestiture of a subsidiary or division by a publicly traded company, which will be subject to capital gains taxation. The subsidiary will become completely independent from the parent corporation, operating entirely on its own. To qualify as a taxable transaction, the parent corporation must divest through direct sale of the division, or the assets it contains. The profits made from the sale will be taxed as capital gains.

INVESTOPEDIA EXPLAINS 'Taxable Spinoff'

A taxable spinoff will bring in liquid assets to the company, usually in the form of cash. The downside of this transaction comes from the decrease in income from the capital gains tax. If a parent company wishes to avoid a taxation, they may consider a tax-free spin off. By distributing new shares for the division or prorating new stock to current owners, the company will be able to avoid any capital gains from divestiture.

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RELATED FAQS
  1. What are some examples of different taxable events?

    A taxable event is any event or occurrence that results in a tax liability. All investors or parties that pay taxes experience ... Read Full Answer >>
  2. How do spinoffs impact investors in the both the parent and subsidiary companies?

    A spinoff is when a company takes a portion of its operations and breaks it off into a separate entity. In a spinoff, shares ... Read Full Answer >>
  3. How is face value used to determine taxation?

    Corporate and government bonds are the most common taxable instruments with listed face values, although there are others ... Read Full Answer >>
  4. How is taxation treated for both the parent and subsidiary company during a spinoff?

    A common separation strategy used by corporations includes divestiture activities that segment a portion of a company's operations, ... Read Full Answer >>
  5. How do the bull and bear markets affect the value of a spinoff company's stock?

    A spinoff is a type of divestiture in which a company cedes its ownership interest in a business unit by distributing 10 ... Read Full Answer >>
  6. How do you transfer common stock from one broker to another?

    Common stock shares are most commonly transferred from one broker to another by a system known as the Automated Customer ... Read Full Answer >>
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