For a dividend reinvestment plan, how much of the taxable portion is recognized if an individual buys 100 shares at $20 each while the market price is $22?

In a dividend reinvestment plan (DRIP), when an individual buys shares, the tax implications depend on the actual market value of the shares at the time of purchase rather than their purchase price.

In this scenario, the individual is acquiring 100 shares at the purchase price of $20 per share while the market price is $22 per share. When dividends are reinvested to purchase additional shares, the taxable portion is often determined based on the market value of the shares purchased through the reinvestment.

Here, the market price of $22 means that the total market value of the 100 shares is $2,200 (100 shares x $22). Since the individual is purchasing at a lower price of $20, the taxable portion recognizes the difference between the market value and the amount spent on the shares. This total amount spent ($2,000) does not directly translate to taxable income, but because the dividend equivalent is based on market value, the taxable portion recognized would be the value of the shares at market price upon reinvestment.

Therefore, since the market value of the shares acquired is $2,200 and the individual paid $2,000, the taxable portion recognized relates to the dividend amount that would be taxable