Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $100,000 and a fair market value of $270,000 on the date of the transfer.In the current year, Blue Corporation ( E & P $800,000) redeems 250 shares from Eleanor for $220,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption, Eleanor will have a:

Question

Quizplus · Accepted Answer

Eleanor's capital gain is calculated by taking the redemption amount ($220,000) and subtracting the basis of the redeemed shares. The original basis of the 1,000 shares was $100,000, so the basis per share is $100. Therefore, the basis of the 250 shares is $25,000 (250 shares x $100/share). The capital gain is $220,000 - $25,000 = $195,000.

Five Years Ago, Eleanor Transferred Property She Had Used in Her