Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000. Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000. Jessica sold the stock rights for $4,000. Jessica's gain or loss on the sale was

Question

Quizplus · Accepted Answer

The gain is calculated by subtracting the basis of the stock rights from the sale price. Since the distribution of stock rights was nontaxable, the basis of the stock rights is $0. Therefore, the gain is $4,000 (sale price) - $0 (basis) = $4,000. However, since the FMV of the stock rights is less than 15% of the FMV of the stock, the basis of the stock rights is $0, and the entire $4,000 is gain.

Jessica Owned 200 Shares of OK Corporation with a Basis