Janet acquired 1,000 shares of Rocky common stock in 2010 at a cost of $20,000 ($20 per share). On December 1, 2017, Janet receives 100 additional shares of Rocky as the result of Rocky’s optional dividend reinvestment plan. The amount of Janet’s dividend reinvestment to acquire the 100 shares was $3,000. Janet instructs her broker to sell the 100 new shares on August 2, 2018 for $35 per share ($3,500 total sales price). What is the amount and character of Janet’s gain from the sale of the 100 shares in 2018?
the answer is stcg 500 but why
What is the amount and character of Janet’s gain from the sale of the 100 shares in 2018?
Ans : $500 Short term capital gain
|Sell stock ( $35 * 100)||$3500|
|Less: Amount to acquiret||($3000)|
|Short term capital gain||$500|
When stocks or securities are held for less than 12 months and if sold for a gain than it will be considered as a short term capital gain.
In this case, 100 stocks were acquired on Dec.1 2017 and it was sold on Auguest 2, 2018 within 8 months (i.e. Dec to July) stocks were sold.
So, any gain on this stock would be considered as short term capitl gain as it was held for less than 12 months.
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