Ethel, Hannah, and Samuel, unrelated individuals, own the stock in Broadbill Corporation (E & P of $700,000) as follows: Ethel, 300 shares; Hannah, 300 shares; and Samuel, 400 shares. Broadbill redeems 200 of Samuel's shares (basis of $175,000) for $250,000. If Samuel's stock is a capital asset and has been held for over three years, Samuel has:
A) A long-term capital gain of $75,000.
B) A short-term capital gain of $75,000.
C) Ordinary income of $250,000.
D) Ordinary income of $75,000.
E) None of these.

Question

Quizplus · Accepted Answer

The correct answer is a long-term capital gain of $75,000 because Samuel's stock, a capital asset held for over three years, was redeemed. The gain is calculated by subtracting the basis ($175,000) from the redemption amount ($250,000), resulting in a $75,000 gain. Since the stock was held for more than a year, the gain is considered long-term.

Ethel, Hannah, and Samuel, Unrelated Individuals, Own the Stock in Broadbill