Brad owns 2,000 shares of Cane Corporation common stock with an adjusted basis o

Question

Brad owns 2,000 shares of Cane Corporation common stock with an adjusted basis of $20,000. He has owned these shares for 3 years. In 2018, Brad receives a nontaxable stock dividend of 20 shares of Cane preferred stock. Fair market values at the time of the dividend were: $8,000 for the preferred stock; and $72,000 for the common. Six months after the stock dividend, Brad sells all of his preferred shares for $7,000. What is the amount and character of Brad’s recognized gain on the sale of the preferred stock?

$6,800 LTCG.

$5,000 STCG.

$6,800 STCG.

None of the above.

$5,000 LTCG.

$6,800 LTCG.

$5,000 STCG.

$6,800 STCG.

None of the above.

$5,000 LTCG.

Explanation / Answer

Answer :-

(c) $ 6,800 STCG

Explanation :-

Common Stock Amount $20,000 with 2,000 shares so $20,000 / 2000 = $10 per Share

Brad Received Non Taxable Stock Dividend of 20 Shares

So Brad Reced 20 shares * $10 per Share

So Brad Reced $200 divided which is non taxable.

Brad sells all of his preferred shares for $7,000.

So Stcg is $7,000- $200

So STCG $6,800

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