Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:
?
$$\begin{array} { c c c }
\text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \
\text { March } 2014 & 200 & \$ 2,000 \
\text { August } 2014 & 300 & \$ 3,600 \
\text { January } 2015 & 200 & \$ 3,000
\end{array}$$
As of December 29, 2018, Sally has not sold any securities. She needs to send a tuition payment of $5,200 to her daughter's boarding school in Zurich before year-end. Since the Fashion Styles Clothing stock is selling for $13 per share, Sally plans to dispose of 400 shares to cover the tuition. Ignoring commissions and transaction costs, what is the optimal tax result of selling 400 shares?

Question

Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:
?
$$\begin{array} { c c c } 
\text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \
\text { March } 2014 & 200 & \$ 2,000 \
\text { August } 2014 & 300 & \$ 3,600 \
\text { January } 2015 & 200 & \$ 3,000
\end{array}$$
As of December 29, 2018, Sally has not sold any securities. She needs to send a tuition payment of $5,200 to her daughter's boarding school in Zurich before year-end. Since the Fashion Styles Clothing stock is selling for $13 per share, Sally plans to dispose of 400 shares to cover the tuition. Ignoring commissions and transaction costs, what is the optimal tax result of selling 400 shares?

Quizplus · Accepted Answer

Sally purchased the shares over a year ago, therefore the 400 shares sold will result in a long-term capital loss. The calculation for the gain or loss is as follows:

400 shares x ($13 - cost basis per share) = 400 shares x ($13 - $10) = $1,200 loss

Since the loss is a capital loss, it can be used to offset any capital gains from other investments or up to $3,000 of ordinary income. The remaining loss can be carried forward to future tax years. Therefore, the optimal tax result of selling 400 shares is a $1,200 long-term capital loss, resulting in choice B.

Sally Owns 700 Shares of Fashion Styles Clothing Common Stock