Question

jJmie owns 1,000 shares of Jasper Corp. common stock with a basis of $20,000. She receives a 10 percent taxable stock dividend when the FMV of each share of stock is $12. How much income does she have? What is the basis in the new shares? When does the holding period of the new shares begin? What is the basis in the old stock?

Answer 1

1. How much income she have ?

Ans - Her income is $ 1200 (1000 stocks *10% = 100 stocks * $ 12)

2.   What is the basis in the new shares ?

Ans - The cost basis of the new share is NIL.

3. When does the holding period of the new shares begin?

Ans - The holding period of the new shares will be considered from date of stock dividend.

4. What is the basis in the old stock?

Ans - The basis of per old stock will be adjusted with the stock dividend received i.e. Cost/Total Shares = 20,000/(1000+100) = $18.18. But it will not impact the overall basis of the holding.