Question

In 2023, the doctor sold to his mother shares that he had purchased for $100,000. At the time of the sale, the shares had a fair market value (FMV) of $180,000.

A) Capital gain
B) Capital loss
C) No capital gain or loss
D) Dividend income

Answer 1

The doctor experienced a capital gain by selling his shares for more than he purchased them for. The increase in value from $100,000 to $180,000 is not a capital loss or dividend income but a capital gain. The correct answer is A) Capital gain.

Step-by-step explanation:

When an investor purchases shares and later sells them at a higher price, the increase in value is termed a capital gain. In the scenario provided, the doctor bought shares for $100,000 and sold them to his mother with a fair market value (FMV) of $180,000.

Hence, the doctor realized a capital gain because the selling price was higher than the purchase price, leading to an increase in the investment's value. This transaction does not constitute a capital loss because there was an increase in value, nor is it classified as dividend income since it's a result of the sale of an asset rather than a direct payment from a firm to its shareholders.