Ten years ago, Carrie purchased 2,000 shares of common stock in Osprey Corporation for $20,000. In the current year, Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Carrie's basis in the stock is:

Question

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Carrie's original basis of $20,000 is allocated between the common and preferred stock based on their relative fair market values at the time of the dividend. The total value is $80,000 ($72,000 common + $8,000 preferred). The basis for the common stock is $18,000 ($20,000 * $72,000/$80,000) and for the preferred stock is $2,000 ($20,000 * $8,000/$80,000).

Ten Years Ago, Carrie Purchased 2,000 Shares of Common Stock