Calculation of Loss for GM Bonds and Cost Basis of New Issues

Question

In 2011 GM bonds were converted to new GM stock and series A and B warrants. For tax purposes, I have read where others reported the cost basis of new shares received for the new GM and the WSA and WSB warrants as the price that they all originally sold on the market when selling these at a later time (3/17/11: WSA $22.56/sh; WSB $16.83/sh; and new GM $31.44/sh).

In this scenario, how would you report the loss that you encountered from the original bankrupt bonds? Did you claim that the original bonds became worthless on 2011 taxes?

As an alternate method, my brokerage firm has calculated a cost basis of the original distributed shares on my 4/11 statement (with no issue date provided) as:

New GM stock $118.483/sh; WSA Warrants $86.781/sh; WSB Warrants $67.324/sh

If I use these cost basis figures when I sell them this year, it will include the loss that I encountered when the original bonds defaulted.

What is the "proper" way to report this activity on taxes? If it is 2 separate issues, I will need to file an amended return for 2011.

Answer 1

I will say in advance this is not a great answer, but I had a similar experience when I owned a CIT bond that defaulted.

I ended up getting stock plus 5 newly issued bonds as a replacement for my defaulted bond. My broker had no clue on cost basis and didn't even try for the new securities, I called the "hotline" setup about CIT default and they knew nothing, and finally I read all the paperwork around the restructuring but it was less than transparent.

So in the end I ended up claiming everything as a wash, no gain/no loss - which probably screwed me in the end as I believe I ended up down. It was a very small position for me and was not worth the headache :(