In September of 2015,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 7 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.What is the basis in the new stock she purchased?

Question

Quizplus · Accepted Answer

Michelle can defer the gain from the sale of her original shares if she reinvests the proceeds in qualified small business stock within 60 days. She purchased new qualified small business stock within the required timeframe, so she can defer the gain. The basis in the new stock is equal to the amount she paid for it, which is $1,100,000. However, since she held the original stock for less than a year, she does not qualify for the special tax treatment for qualified small business stock, so her basis is not reduced by 50%. Therefore, the basis in the new stock is $1,100,000 / 2 = $550,000. Since she purchased the new stock 45 days after the sale of the original stock, she satisfies the requirements for the deferral of gain under the IRC section 1045.

In September of 2015,Michelle Sold Shares of Qualified Small Business