Amy received nontaxable stock rights on February 3,2010.She allocated $8,000 of the $30,000 basis for the associated stock to the stock rights.The stock rights are exercised on October 2,2010.The exercise price for the stock is $25,000.What is the taxpayer's basis for the acquired stock?
A)$0.
B)$25,000.
C)$33,000.
D)$55,000.
E)None of the above.

Question

Quizplus · Accepted Answer

When the stock rights were received, the basis was allocated as follows:

$8,000 (basis for stock rights)
$22,000 (remaining basis for associated stock)

When the stock rights were exercised, the taxpayer paid $25,000 for the associated stock. The basis for the stock would be equal to the basis allocated to the stock plus the amount paid to acquire the stock:

$22,000 (basis allocated to stock)
+$25,000 (amount paid to acquire stock)
=$47,000 (taxpayer's basis for acquired stock)

Therefore, the correct answer is C) $33,000.

Amy Received Nontaxable Stock Rights on February 3,2010