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Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of...

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 480 $ 18,240
4/20/2009 380 16,644
1/29/2010 580 18,328
11/02/2012 330 12,276

If Dahlia sells 1,040 shares of Microsoft for $60,320 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.

(Capital gain/loss?)

Solutions

Expert Solution

To reduce capital gains, stocks with highest cost per share is selected. Cost per share of various lots is:

Date Purchased Shares Basis Per share
07-10-2008     480 18,240      38.00
4/20/2009     380 16,644      43.80
1/29/2010     580 18,328      31.60
11-02-2012     330 12,276      37.20

Now the sale is first 380 from 2009 lot, 480 from 2008 lot and the balance 180 from 2012 lot.

Cost of 1040 shares is:

Date Purchased Shares Basis Per share Sale units Basis of shares sold
07-10-2008     480 18,240      38.00 480        18,240
4/20/2009     380 16,644      43.80 380        16,644
1/29/2010     580 18,328      31.60
11-02-2012     330 12,276      37.20 180           6,696
1040        41,580

Capital gain = 60,320 - 41,580 = 18,740


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