Question

Maple Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Brady, who immediately elected S corporation status. On December 31 of the current year, Maple distributed $33,000 cash to Brady.
What is the amount and character of gain Brady must recognize on the distribution in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)
a. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $38,600.
b. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $9,500.
c. At the time of the distribution, Brady’s basis in his Maple Corp. stock was $0.

Answer 1

The amount of gain for Brady's basis stock was $38,600 is $0 capital gain, and for Brady's basis stock was $9,500 is $23,500 long term capital gain, and for Brady's basis was $0 is $33,000 long term capital gain.

How to calculate gain in stock?

Gain or capital gain in stock have two type, short-term and long-term. Short term capital gain is gain from capital for periods of less than 1 year or 12 months. Long term capital gain is gain from capital for periods of more than 1 year or 12 months.

Brady have stock in Marple Corp. for three years, so it will be long term capital gain.

Capital gain can be calculated by this formula,

Capital gain = cash distributed - Basis stock

For basis stock was $38,600

Capital gain = $33,000 - $38,600

Capital gain = -$5,600

Since, the capital gain result in negative this indicate no capital gain for Brady and Brady's stock basis reduced from $38,600 to $5,600. So, Brady recognized $0 capital gain.

For basis stock was $9,500

Capital gain = $33,000 - $9,500

Capital gain = $23,500

This indicate the Brady's stock basis reduced to $0 and Brady recognized $23,500 long term capital gain.

For basis stock was $0

Capital gain = $33,000 - $0

Capital gain = $33,000

This indicate the Brady's stock basis would remain at $0 and Brady recognized $33,000 long term capital gain.

Thus, Brady's amount and character of capital gain is $0 capital gain at basis stock $38,600, and $23,500 long term capital gain at basis stock $9,500, and $33,000 long term capital gain at basis stock $0.

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