Question

Cavin sells stock three years after he received it as a lump-sum distribution from a qualified stock bonus plan. His company had taken $31,000 tax deduction because of the stock contribution to him. When the stock was distributed, he had a net unrealized appreciation (NUA) of $9,500. The fair market value of the stock and the sales price at the time of sale was $56,000. How much of the sale price will be subject to long-term capital gain treatment?

please show me how to do the calculation

Answer 1

Answer:

Company takes tax deduction when employee exercises the option.

Company had taken $31,000 tax deduction because of the stock contribution to him.

Hence adjustable basis of stock to Cavin is $31,000

Sale value = $56,000

Hence:

Amount which is subject to  long-term capital gain treatment =56000 - 31000 = $25,000

Amount which is subject to  long-term capital gain treatment = $25,000