Question

Carter owns 1,200 shares of Echo Corporation
 stock. He purchased 400 shares of the stock on December 23, 2015 for $48,000, and the other 800 shares on October 31, 2016, for $84,000. On August 14, 2017, he sells 500 shares of the stock for $15,000 and pays a $900 commission on the sale.

Answer 1

 In the absence of specific identification of shares sold, stock is assumed to be sold on a first-in first-out basis. Under the general rule, Carter is assumed to have sold the 400 shares purchased on December 23, 2015 and 100 of the shares purchased on October 31, 2016. The 400 shares purchased on December 23, 2015, produce a $36,720 long-term capital loss. The 100 shares purchased on October 31, 2016 produce a $7,680 short-term capital loss:

 

400 shares purchased on 12/23/15:

 

Amount realized [($15,000 - $900) x (400 ÷ 500)                 $ 11,280

Adjusted basis                                                                           (48,000)

Long-term capital loss                                                           $(36,720)

 

100 shares purchased on 10/31/16:

 

Amount realized [($15,000 - $900) x (100 ÷ 500)                   $ 2,820

Adjusted basis [($84,000 ÷ 800) x 100]                                   (10,500)

Short-term capital loss                                                            $ (7,680)

The issues are the basis of the 500 shares sold on August 14, 2017, the determination of the realized gain or loss on the sale of the shares, and the character of the realized gain or loss.