Liquidating subsidiary ordinary or capital speed dating for young people

Liquidating subsidiary ordinary or capital

As in a regular stock purchase, the parent will assume a carryover basis in the assets acquired, so the parent's outside basis will likely exceed its inside basis.

Tax basis is the carrying cost of an asset on a company's tax balance sheet, and is analogous to book value on a company's accounting balance sheet.In most cases, assets are initially recorded at acquisition cost for both book and tax purposes.The taxable gain, if any, recognized by the seller (either individual investors or corporate shareholders) upon the sale of stock or assets is equal to the purchase price less the tax basis in the stock or assets sold.If the tax basis exceeds the sale price, the seller recognizes a loss on the transaction rather than a gain.When the transaction results in a gain, the seller's tax burden is determined by a number of factors, including whether or not the transaction is taxable, whether the seller is taxable or tax-exempt, whether the gain is taxed as ordinary income or a capital gain, the seller's holding period (how long the sold stock/assets were held by the seller before sale), and the applicable tax rate. The basis to be used in calculating taxes depends on how the transaction is structured.

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Broadly speaking, acquisitions can be structured as either asset or stock sales.

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