Brett owns stock in Oriole Corporation (basis of $100,000) as an investment. Oriole distributes property (fair market value of $375,000? basis of $187,500) to him during the year. Oriole has current E & P of $25,000 (which includes the E & P gain on the property distribution), accumulated E & P of $100,000, and makes no other distributions during the year. What is Brett's capital gain on the distribution?
A) $0
B) $100,000
C) $150,000
D) $187,500
E) None of the above

Question

Quizplus · Accepted Answer

Brett's capital gain is calculated by subtracting the total E & P ($125,000) from the fair market value of the property received ($375,000), resulting in a capital gain of $250,000. However, since Brett's basis in the stock is $100,000, the capital gain is limited to $150,000.

Brett Owns Stock in Oriole Corporation (Basis of $100,000) as an Investment