Question

John is in the 35% tax rate bracket and has sold the following stocks in 2017:

	Date purchased	Basis	Date Sold	Amount Realized
Stock A	1/23/2013	5,250	7/22/2017	3,500
Stock B	4/10/2017	14,000	9/13/2017	16,500
Stock C	8/23/2014	10,750	10/12/2017	15,300
Stock D	5/19/2014	4,230	10/12/2017	10,400
Stock E	8/20/2017	8,300	11/14/2017	3,500

Please answer the following questions based on the above information:

a) What is George’s net short-term capital gain or loss from these transactions?
b) What is George’s net long-term capital gain or loss from these transactions?
c) What is George’s overall net capital gain or loss from these transactions?
d) What amount of the gain, if any, is subject to the preferential rate for certain capital gain?

Answer 1

a.Grayson’s net short-term capital loss is $2300, which is the net of the short-term gains and losses for the year. This $2300 loss is the short-term capital gain of $2,500 from Stock B (i.e. $16,500 – 14,000) less the short-term capital loss of $4,800 from Stock E (i.e. $3,500 – 8,300).

b.Grayson’s net long-term capital gain is $15140, which is the net long-term gain less the long-term loss for the year. This is the net of the long-term capital gain of $10,720 (i.e. $4,550 from Stock C ($15,300 – 10,750) and $6,170 from Stock D ($10,400 – 4230)) less the long-term capital loss of $1,750 from Stock A ($3,500 – 5250).

c.Grayson’s net capital gain is $12840, which is the net short-term loss offset against the net long-term capital gain for the year because the signs are opposite. This $2300 short-term capital loss (from part a) is netted against the $15140 net long-term capital loss (from part b).

d.Grayson’s entire net capital gain of $12840 will be taxed at the preferential tax rate.

Thanks