Tex Payor purchased 1,000 shares of Stocks4U, a mutual fund with a 5% front-end load, on February 26^th.The fund's net asset value on that date was $30.40 and its offer price was $32.Tex sold his shares on March 15^th of the following year for $45 a share. What were the tax consequences for Tex?

Question

Quizplus · Accepted Answer

If Tex purchased 1,000 shares of Stocks4U at its offer price of $32 on February 26^th and sold his shares the following year on March15^th for $45 a share, he must pay taxes on $13,000, which will be taxed at a preferential long-term capital gain rate under current tax law. Tex's gain is calculated based on the price he paid for the shares, which included the front-end load, or $32. Since he sold the shares for $45, his gain was $13 a share, or $13,000 for his 1,000 shares. His holding period began the day after his purchase, or February 27^th, and ended on the day he sold his shares on March 15^th. Since this is longer than twelve months, his gain will be taxed at a preferential long-term capital gain rate under current tax law.

Tex Payor Purchased 1,000 Shares of Stocks4U, a Mutual Fund