Eloise owns 100 shares of Ajax Corp., a publicly traded company, which Eloise pu

Question

Eloise owns 100 shares of Ajax Corp., a publicly traded company, which Eloise purchased on January 1, Year 1, for $10,000. On January 1, Year 3, Ajax declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 per share. Immediately following the split, the FMV of Ajax stock was $62 per share. On February 1, Year 3, Eloise had her broker specifically sell the 100 shares of Ajax stock received in the split when the FMV of the stock was $65 per share. What amount should Eloise recognize as long-term capital gain income on her Form 1040, U.S. Individual Income Tax Return, for Year 3?

Explanation / Answer

Adjusted basis for 100 shares = $10000

After stock split number of shares are 200 but adjusted basis will $10000.

FMV of 100 shares = (100 x 65)   = 6500

Less: Adjusted basis (10000 / 2)   = 5000

Long-term capital gain income     = $1500

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