Question

If you purchased shares of common stocks in 1990 for $2,000 and sold them for $3000 in 2001 you would be liable for capital gains taxes on?

		$3000
		$1000 less the rate of inflation
		$2000 less the rate of inflation
		$1000

Answer 1

Ans : $1000 ( Sales Price - Purchase Price)

An Example of How the Capital Gains Tax Works (source: Investopedia)

Say you bought 100 shares of XYZ stock at $20 per share and sold them more than a year later for $50 per share. Let's also assume that you fall into the income category where your long-term gains are taxed at 15%. The table below summarizes how your gains from XYZ stock are affected.

HOW CAPITAL GAINS AFFECT EARNINGS
Bought 100 shares @ $20	$2,000
Sold 100 shares @ $50	$5,000
Capital gain	$3,000
Capital gain taxed @ 15%	$450
Profit after tax	$2,550

In this example, $450 of your profit will go to the government. But it could be worse. Had you held the stock for one year or less (making your capital gain a short-term one), your profit would have been taxed at your ordinary income tax rate, which can be as high as 37%.3 And that's not counting any additional state taxes.