Question

Horace was a participant in a qualified stock bonus plan. He sold stock 10 months after he received it as a distribution from the stock bonus plan. When the stock was distributed, Horace had a net unrealized appreciation of $10,000. He also had ordinary income of $25,000. The fair value of the stock at the time of sale was $75,000. How much of the sale price will be subject to long term capital gain treatment?

$40,000

$10,000

25,000

$50,000

Answer 1

The appreciation of the stock after the date of distribution should be taxed either under long term capital or short term capital. We know that long term capital gain is from assets that are held for more than a year or 12 months. Short term capital gain is from assets that are held for less than 12 months. In the given problem, the net unrealized appreciation only is treated as long term capital gain. The other gain is treated as short term capital gain because the stock was sold after 10 months. So, the long term capital gain is of $10,000 only.

Answer is option (b).