Ten years ago, Connie purchased 4,000 shares in Platinum Corporation for $40,000. In the current year, Connie receives a nontaxable stock dividend of 40 shares of Platinum preferred. Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common. Based on this information, Connie's basis is:

Question

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Connie's original basis of $40,000 is allocated between the common and preferred stock based on their relative fair market values at the time of the dividend. The total value is $80,000 ($72,000 common + $8,000 preferred). The basis for the common stock is $36,000 ($40,000 * $72,000/$80,000) and for the preferred stock is $4,000 ($40,000 * $8,000/$80,000).

Ten Years Ago, Connie Purchased 4,000 Shares in Platinum Corporation