Question

6. P acquired HHH stock at various times and at various prices over the past three years as shown below. P sold 100 shares of HHH stock for $20,000 in 2020, but he cannot identify the particular shares that were sold. How much gain must P report on the sale?

            P bought 50 shares of HHH stock in 2014 for $3,000.

            In 2016 P bought 100 shares of HHH stock for $5,000

            In 2018 P bought 200 shares of HHH stock for $9,000

          In 2019 P bought 100 shares of HHH stock for $4,500

Answer 1

Specific Share Identification: It is an investment accounting strategy wherein investor intends to obtain most favorable tax treatment when selling a holding which was acquired at different times and different prices.

So, while identifying shares investor will choose shares with highest acquisition price to to report least possible gain to minimize tax liability.

Shares Purchased

Date	No. of Shares	Total Amount	Price per share (Total Amount / No. of shares)
2014	50	$3,000	$3,000 / 50 = $60
2016	100	$5,000	$5,000 / 100 = $50
2018	200	$9,000	$9,000 / 200 = $45
2019	100	4,500	$4,500 / 100 = $45

Shares Sold

Date	No. of Shares	Total Amount	Price per share (Total Amount / No. of shares)
2020	100	$20,000	$20,000 / 100 = $200

So, to minimize tax liability investor P will identify shares with highest acquisition price wich would minimize gain.

Investoe will indentify 50 shares purchased in 2014 @ $60 per share and 50 shares purchased in 2014 @$50 per share. Reported gain will be as following.

	No. of shares	Purchase price	Sale Price	Gain per Share	Total Gain
	50	$60	$200	$140	=50 * $140 = $7,000
	50	$50	$200	$150	=50 * $150 = $7,500
Total	100				= $14,500