An individual investor has held a share of common stock for 7 months, but decides to sell it today. The original purchase price was $120 and today's selling price is $150. This investor is in the 28 percent marginal income tax bracket. How much of the stock's capital gain will be left over after federal taxes?

Question

Quizplus · Accepted Answer

The capital gain is $30 ($150 - $120). Since the stock was held for less than a year, it is a short-term capital gain and taxed at the ordinary income tax rate of 28%. The tax on the gain is $8.40 ($30 * 0.28), leaving $21.60 after taxes ($30 - $8.40).

An Individual Investor Has Held a Share of Common Stock