Jacqueline owns stock in Dove Corporation (basis of $40,000)as an investment.Dove distributes property (fair market value of $150,000;basis of $75,000)to her during the year.Dove has current E & P of $10,000 and accumulated E & P of $40,000 and makes no other distributions during the year.What is Jacqueline's capital gain on the distribution?
A)$0.
B)$40,000.
C)$60,000.
D)$75,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Jacqueline's basis in the distributed property is the same as Dove's basis, which is $75,000. Therefore, there is a realized gain of $75,000 ($150,000 - $75,000), but only $10,000 of that gain can be considered as dividend income (since Dove only has current E&P of $10,000). The remaining $65,000 is treated as a capital gain. Thus, Jacqueline has a capital gain of $65,000 ($40,000 basis in stock + $65,000 realized capital gain).

Jacqueline Owns Stock in Dove Corporation (Basis of $40,000)as an Investment.Dove