Question

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 7/10/2009 530 $ 22,790 4/20/2010 430 20,984 1/29/2011 630 23,058 11/02/2013 380 16,036 If Dahlia sells 1,190 shares of Microsoft for $74,970 on December 20, 2019, what is her capital gain or loss in each of the following assumptions? (Do not round intermediate calculations.) a. She uses the FIFO method. b. She uses the specific identification method and she wants to minimize her current year capital gain.

Answer 1

Answer:

a)

Date purchased	Shares	Basis
7/10/2009	530	22790
4/20/2010	430	20984
1/29/2011	630	23058
11/02/2013	380	16036
Under FIFO Method
1190 shares has been sold means the below shares has been sold
7/10/2009	530	22790
4/20/2010	430	20984
1/29/2011	230	8418	(23058/630)*230
(1190-530-430)
Total adjusted basis	1190	52192
Capital gain = (74970-52192) = $22778

b)

Cost of shares purchased in 2009 = Basis / Shares = $22790/ 530 = $43 per share

Cost of shares purchased in 2010 = Basis / Shares = $20984/ 430 = $48.8 per share

Cost of shares purchased in 2011 = Basis / Shares = $23058/ 630= $36.6 per share

Cost of shares purchased in 2013 = Basis / Shares = $16036/ 380 = $42.2 per share

To minimize her capital gain, Dahlia should specifically identify the 430 shares purchased in 2013, then the 530 shares purchased in 2009 and then 100 of the shares purchased in 2013.

Under the specific identification method:

430 shares purchased in 2010	$20984 basis
530 shares purchased in 2009	$22790 basis
100 shares purchased in 2013(100/380X $16036)	$4220 basis
Total basis	$47994

Capital gain = Sales proceeds - tax basis of the shares sold

Capital gain = $74970 - $47994

Capital gain = $26976