B owns 100 shares of T Corporation common stock, which he acquired on June 1, 2004 for $800.On October 15 of this year he received a stock dividend of 25 shares of preferred worth $4 per share when the common was worth $1 per share.What is B's basis in his preferred stock and when does his holding period begin?

Question

Quizplus · Accepted Answer

The basis in the preferred stock is calculated by allocating the original cost of the common stock between the common and preferred stock based on their relative fair market values at the time of the dividend. The preferred stock's basis is $400 (25 shares x $4 per share). The holding period for the preferred stock begins on June 1, 2004, the same as the original common stock.

B Owns 100 Shares of T Corporation Common Stock, Which