Question

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

Microsoft common stock
Date Purchased	Shares	Basis
7/10/2008	400	$10,000
4/20/2009	300	$11,000
1/29/2010	500	$12,230
11/02/2012	250	$7,300

If Dahlia sells 800 shares of Microsoft for $40,000 on December 20, 2020, what is her capital gain or loss if 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:

Microsoft common stock
Date Purchased	Shares	Basis
7/10/2008	400	$10,000
4/20/2009	300	$11,000
1/29/2010	500	$12,230
11/02/2012	250	$7,300

If Dahlia sells 800 shares of Microsoft for $40,000 on December 20, 2020, what is her capital gain or loss if she uses the specific identification method and wants to minimze her capital gain?

Answer 1

Given data;

Shares of 400 was Purchased with $10,000 in 7/10/2008,

Shares of 300 was Purchased with $11,000 in 4/20/2009,

Shares of 500 was Purchased with $12,230 in 1/29/2010,

Shares of 250 was Purchased with $7,300 in 11/02/2012.

Solution:

Cost of shares purchased in 7/10/2008 = $10,000 / 400 = $25 per share,

Cost of shares purchased in 4/20/2009 = $11,000 / 300 = $36.67 per share,

Cost of shares purchased in 1/29/2010 = $12,230 / 500 = $24.46 per share,

Cost of shares purchased in 11/02/2012 = $7,300 / 250 = $29.2 per share.

1. If Dahlia uses FIFO method:

To minimize her capital gain, Dahila should take 400 shares purchased in 7/10/2008, 300 shares purchased in 4/20/2009, and 100 shares purchased in 1/29/2010 (FIFO method):

400 shares purchased in 7/10/2008	$10,000
300 shares purchased in 4/20/2009	$11,000
100 shares purchased in 1/29/2010	$2,446 (24.46*100)
Total basis	$23446

If Dahlia sells 800 shares of Microsoft for $40,000 on December 20,2020

Capital gain = Sale proceeds - tax basis of shares sold

= $40,000 - $23,446

= $16,554.

Therefore the capital gain of Dahila is $17,054.

2. If Dahlia uses Special Identification method:

To minimize her capital gain, Dahila should take 300 shares purchased in 4/20/2009, 400 shares purchased in 7/10/2008, and 100 shares purchased in 11/02/2012.

300 shares purchased in 4/20/2009	$11,000
400 shares purchased in 7/10/2008	$10,000
100 shares purchased in 11/02/2012	$2,920
Total basis	$23,920

If Dahlia sells 800 shares of Microsoft for $40,000 on December 20,2020

Capital gain = Sale proceeds - tax basis of shares sold

= $40,000 - $23,920

= $16,080.

Therefore the capital gain of Dahlia is $16,080.