25 May Question 1. Mike’s basis in his stock in Tan Corporation is $75,000. He receives n
Question
1. Mike’s basis in his stock in Tan Corporation is $75,000. He receives nontaxable stock rights (fair market value of
$20,000) when the value of the stock is $100,000. What is the basis for the stock rights?
a. $0.
b. $12,500.
c. $15,000.
d. The basis is $0 unless the taxpayer elects to allocate a portion of the cost of the stock to the rights.
e. None of the above.
2. Which of the following statements is correct?
a. Under no circumstances does part of the stock basis have to be allocated to nontaxable stock rights.
b. If the fair market value of stock rights is equal to at least 15% of the fair market value of the stock, part of the stock basis must be allocated to nontaxable stock rights.
c. An election may be made to allocate part of the stock basis to nontaxable stock rights only if the fair market value of the nontaxable stock rights is at least 15% of the fair market value of the stock.
d. Only b. and c. are correct.
e. Only a. and c. are correct.
3. In 2010, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2014. At this time, the fair market value of the car has declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with outofpocket costs of $5,000. She later sells the car for $30,000. What is Julia’s recognized gain or loss on the sale of the car?
a. $0.
b. $13,000.
c. $15,000.
d. $18,000.
e. None of the above.
.
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