Trey is in the 32% tax bracket. He acquired 4,000 shares of stock in Midlands Corporation ten years ago at a cost of $80 per share. In the current year, Trey received a payment of $175,000 from Midlands Corporation in exchange for 1,200 of his shares in Midlands. Midlands has E & P of $160,000. Trey has a capital loss carryover of $50,000 the current tax year. Assume that Trey has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%. What amount of the capital loss may Trey deduct in the current year in the following situations? a. The $175,000 payment from Midlands Corporation is a qualifying stock redemption for tax purposes. Trey may use 4,350 ✔ Feedback ✓ Check My Work 50,000 ✓of the capital loss carryover to offset the gain on the redemption. His income tax liability is Noncorporate shareholders generally prefer to have a stock redemption treated as a sale or exchange rather than as a dividend distribution. b. The $175,000 payment from Midlands Corporation does not qualify as a stock redemption for tax purposes. Trey could deduct $ 3,000 ✓of the $50,000 capital loss carryover. His income tax liability is $ Foodbook 47,000 X.
Trey is in the 32% tax bracket. He acquired 4,000 shares of stock in Midlands Corporation ten years ago at a cost of $80 per share. In the current year, Trey received a payment of $175,000 from Midlands Corporation in exchange for 1,200 of his shares in Midlands. Midlands has E & P of $160,000. Trey has a capital loss carryover of $50,000 the current tax year. Assume that Trey has no capital losses and taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%. What amount of the capital loss may Trey deduct in the current year in the following situations? a. The $175,000 payment from Midlands Corporation is a qualifying stock redemption for tax purposes. Trey may use 4,350 ✔ Feedback ✓ Check My Work 50,000 ✓of the capital loss carryover to offset the gain on the redemption. His income tax liability is Noncorporate shareholders generally prefer to have a stock redemption treated as a sale or exchange rather than as a dividend distribution. b. The $175,000 payment from Midlands Corporation does not qualify as a stock redemption for tax purposes. Trey could deduct $ 3,000 ✓of the $50,000 capital loss carryover. His income tax liability is $ Foodbook 47,000 X.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
10001
Transcribed Image Text:Trey is in the 32% tax bracket. He acquired 4,000 shares of stock in Midlands Corporation ten years ago at a cost of $80 per share. In the
current year, Trey received a payment of $175,000 from Midlands Corporation in exchange for 1,200 of his shares in Midlands. Midlands has
E & P of $160,000. Trey has a capital loss carryover of $50,000 in the current tax year. Assume that Trey has no capital losses and
taxpayers in the 32% tax bracket are subject to the long-term capital gains and qualified dividends tax rate of 15%.
What amount of the capital loss may Trey deduct in the current year in the following situations?
a. The $175,000 payment from Midlands Corporation is a qualifying stock redemption for tax purposes.
Trey may use $
4,350 ✓.
Feedback
Check My Work
50,000✔ of the capital loss carryover to offset the gain on the redemption. His income tax liability is
Noncorporate shareholders generally prefer to have a stock redemption treated as a sale or exchange rather than as a dividend distribution.
b. The $175,000 payment from Midlands Corporation does not qualify as a stock redemption for tax purposes.
Trey could deduct $
3,000 ✓of the $50,000 capital loss carryover. His income tax liability is $
Feedback
47,000 X.
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