The potential purchase of social-media platform Twitter by Tesla CEO Elon Musk is at risk, according to a Washington Post report. If the deal falls apart because Musk gets cold feet, he would be on the hook for a $1 billion breakup fee.
That’s a big chunk of change. But at least Musk would get a tax break out of it.
“It’s good to keep in mind that the payment would be treated as a capital loss, which [Musk] can use to offset capital gains he realized upon his recent sales of some of his portfolio holdings,” says accounting expert Robert Willens. “If that capital loss can offset short-term capital gains, the real cost of the termination fee would be reduced by about 40% of its face amount.”
That could save Musk up to $400 million, making the real cost of walking away about $600 million.
Twitter stock was down 3.9%, at $ 37.27, in Friday trading, following The Washington Post report. The S&P 500 and Dow Jones Industrial Average were down 0.7% and 0.4%, respectively.
Tesla stock (TSLA) was 0.4%, at $736.47. The company had earlier reported second-quarter delivery data that met expectations.
Musk has some potential tax liabilities coming up for 2022 activity and might be able to fully utilize a tax break. Musk sold about $8.5 billion worth of Tesla stock back in April, presumably to fund part of the potential Twitter purchase.
Musk, of course, paid roughly $11 billion in taxes for 2021 after the CEO sold Tesla stock for another reason: He had expiring management stock options. He also waded into a debate over taxation on unrealized capital gains, ultimately deciding to sell some Tesla stock and pay the taxes on his gains.
Musk still holds about 163 million shares of Tesla, about 16% of the total stock outstanding.
As for the Twitter deal, Wedbush analyst Dan Ives wrote Thursday that he sees a 35% chance Musk walks away from the deal and ends up “in a nasty court battle with Twitter’s Board for the coming months.”
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