Question

Gordon purchased 100 shares of Apple on 09/19/12 believing taht the iphone 5 would move the price of the stock, for $702 per share. He sold them for $582 on 11/19/12. On 12/06/12he believed that the stock had bottomed and repurchased 100 shares for $568 a share. Also, in a separate transaction Gordon purchased 500 shares of American Capital Mortgage Investment Corporation on 08/31/12 for $24.50 a share. The stock paid a dividend on 10/26/12 of $.90 a share which had an ex-date of 09/19/12. Then he sold the shares on 12/12/12 for $25.50 a share. Gordon comes to you and ask what his gain/loss is from these transactions, and also whether any income he received is taxable at any preferential rates. Please advise him

Answer 1

Gain / Loss on Apple Shares

Sales Date (11-19-12) Sales Proceeds = 582 x 100 = 58200

Puchase Date (09-19-12) Purchase Cost = 702 x 100 = 70200

Short Term Capital Loss = 70200 - 58200 = $12000

Loss will be short term as holding period is less than one year.

Gain / Loss on Apple repurchase shares

Gain on these shares will not be calculated as Gordon held these shares till end of financial year (12/31/12). so gain / loss will not be calculated for these shares.

Gain / Loss on ACMIC Shares

Sale Date (12/12/12) Sales Proceeds = (500 x 25.50) = 12750

Purchase Date (08/31/12) Purchase Cost = (500 x 24.50) = 12250

Short term capital gain = 12750- 12250 = $500

Gain will be short term as holding period is less than one year.

Net Short Term capital loss = 12000 - 500 = $11500

Dividend Income

Total Dividend = 500 x 0.90 = $450

Dividend is a qualified dividend or not, we have to chechk that whether shares was held for more than 60 days during 121 days which start from 60 days prior to ex dividend date and end on sale date. so,

Ex dividen date is 09-19-12 and 121 days period will start from prior 60 days of ex dividend date I.e. 07/20/12. and will end on 11/18/12. Gordon held these shares during this period more than 60 days and dividend is paid by a US corporation so dividend for Gordon will be qualified dividend and will be taxed as per rates on long term capital gain at O% , 10% , or 20% as per slab applicable to him.

apart from this gordan may deduct up to $3000 of his regular income from his capital loss of $11500 this year.

So gordon capital loss = 11500 without setoff and 11050 after set off

Rate would we 0 10 or 15 percent on dividend income if not set off and zero in case he get set off.