Question

Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of Microsoft common stock over the years: Date Purchased Shares Basis 7/10/2008 500 $ 20,000 4/20/2009 400 18,320 1/29/2010 600 20,160 11/02/2012 350 13,720 If Dahlia sells 1,100 shares of Microsoft for $66,000 on December 20, 2018, what is her capital gain or loss in each of the following assumptions? (Do not round intermediate calculations.)

a. She uses the FIFO method.

Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of Microsoft common stock over the years:

Date Purchased	Shares	Basis
7/10/2008	500	$	20,000
4/20/2009	400		18,320
1/29/2010	600		20,160
11/02/2012	350		13,720

If Dahlia sells 1,100 shares of Microsoft for $66,000 on December 20, 2018, what is her capital gain or loss in each of the following assumptions? (Do not round intermediate calculations.)

b. She uses the specific identification method and she wants to minimize her current year capital gain.

   

Answer 1

1. She uses FIFO method

Under FIFO method, the first 500 shares sold shall have basis of $20,000, the next 400 shall have basis of $18320 and the last 200 shares shall have basis of (20160/600)*200 = $6720.

Total Basis = $45040

Sales Price = $66000

Resulting Capital Gain = 66000-45040 = $20960

2. She uses specific identification method and wants to minimize her current year capital gain

Date Purchased	Shares	Basis	Per share rate	Rank
7/10/2008	500	20,000	40	II
4/20/2009	400	18,320	45.8	I
1/29/2010	600	20,160	33.6	IV
11/02/2012	350	13,720	39.2	III

To minimize the capital gain, Dahlia should identify shares with high cost per share rate as per ranking done above.

4/20/2009	400	18,320
7/10/2008	500	20,000
11/02/2012	Balance = 200 @39.2	7840
Total	1100	46160

Resulting Capital Gain = 66000-46160 =$19840

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