Question

Bob, Carl, and Dan, unrelated individuals, own 30 shares, 30 shares, and 40 shares, respectively, in JH Corporation. JH has 100 shares outstanding and E&P of $200,000. The corporation redeems 20 shares of Dan’s stock for $30,000. Dan paid $200 a share for the stock two years ago. What will be tax consequences to Dan upon redemption?

Answer 1

Answer:

For tax purposes  redemption of shares implies disposition of shares and as needs be capital gain or loss may emerge therefore.

Given information about Dan:

• Dan holds = 40 shares
• Redemption amount paid to Dan for 20 shares = $30000
• Amount paid by Dan while purchasing each share  = $ 200

In the given circumstance Dan who holds 40 shares in which shares are redeemed . Since the shares are purchased two years back the subsequent gain is a Long haul capital gain as follows :

Particulars	Amount	Amount
Redemption amount for 20 shares		$30000
Less: Amount paid by Dan while purchasing	= $ 200 * 20 shares = $ 4,000	$ 4,000
Long term capital gain on redemption	$30000 -  $ 4,000 = $ 26,000	$ 26,000

Therefore ,The above long haul capital gain is taxed according to the provisions applicable.