Greller owns 100 shares of arden corp., a publicly traded company, which greller purchased on january 1, year 1, for $10,000. on january 1, year 3, arden declared a 2-for-1 stock split when the fair market value (fmv) of the stock was $120 share. immediately following the split, the fmv of arden stock was $62 per share. on february 1, year 3, greller had his broker specifically sell the 100 shares of arden stock received in the split when the fmv of the stock was $65 per share. what is the basis of the 100 shares of stock arden sold?
a. $6,500
b. $6,000
c. $5,000
d. $6,200

The answer is: $5,000

Explanation:

Greller first bought 100 stocks at $100 each ($10,000 in total).

Then the stock split in two, so Greller now had 200 stocks with a basis of $50 each.

If then Greller sold 100 stocks, the total basis for the sell is $5,000.

Any amount above $5,000 will be considered as capital gains by the IRS. So Greller should report the $1,500 he earned.

the correct answer is:

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