Question

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1993 when he acquired 30 shares for $20 a share. In 1998, Alfred bought 150 shares at $10 a share. In 2013, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per share in the current year (2014). If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

Answer 1

recognized gain is $1250

Step-by-step explanation:

given data

purchased shares = 380

acquired 30 share = $20 a share 600

bought 150 shares = $10 a share 1500

acquired 200 shares = $50 a share 10000

sell 125 shares = $60 per share

solution

we know here amount realize is 125 shares × $60 per share

amount realize = 7500

and adjusted basis is = 6250

realized gain = 1250

so recognized gain is equal to realized gain

so recognized gain is $1250

this is based on section 3

Basis Considerations point (c) Identification problem

i.e. low basis = large gain

and high basis = minimized gain

and logic is that

recognized gain is $1250 when Alfred trying to minimize gain so it mean you avoid pay tax on large gain

and he want to minimize recognized gain

so that he indicate 125 shares is selling $60 per share

that come by 200 shares that Alfred purchase at $50

so that Alfred have to report gain $10 each on 125 shares sold

so here so recognized gain is $1250