In 2006, Gita contributed property with a basis of $500,000 and a fair market value of $3,000,000 to a qualified small business corporation for all of its common stock. She sells the stock in 2018 for $4,000,000.a. What is the amount of taxable gain on the transaction?b. Assume instead that the stock was acquired in December 2010. What is the amount of the taxable gain?
What will be an ideal response?
a. The amount of the realized gain is $4,000,000 - $500,000 = $3,500,000. Fifty percent of the gain ($1,750,000) is eligible for the exclusion for qualified small business stock. $1,750,000 is taxable.
b. Because the qualifying stock was acquired after September 27, 2010, the 100% exclusion provisions apply. None of the gain is taxable.
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