Question

Helen, Greg, and Wanda own the stock in HGW Corporation with earnings and profits of $900,000 as follows: Helen, 600 shares; Greg, 400 shares; and Wanda, 1,000 shares. Greg is Helen’s son, and Wanda is Helen’s sister. HGW Corporation redeems 400 of Helen’s shares with a basis of $55,000 for $240,000. Helen purchased the stock three years ago as an investment. With respect to the stock redemption, Helen has:

Group of answer choices

Dividend income of $185,000

Dividend income of $240,000

Long-term capital gain of $185,000

Long-term capital gain of $240,000

Answer 1

Long-term capital gain of $ 185000

Explanation:

Capital gain tax is a tax applies to investments and other personal property.The tax is calculated on the amount that investment has increased in value.Its usually applied when we sell the item.Long term capital gains Or losses apply on sale of investment made after owning it for 12 months or longer. The long term capital gain or loss amount is determined by difference in value between sale price and purchase price.

So here Helen purchased the stock three years ago, so it's a long-term capital item.The amount of long-term capital gain or loss of Helen is = $ 240000 - $ 55000 = $ 185000 gain.