Final answer:
Dahlia's total capital gain from selling 1,550 shares of Microsoft stock using the First-In, First-Out method would be $30,050, resulting in a tax liability of $9,616 at her 32 percent tax rate. This calculation assumes no transaction costs.
Step-by-step explanation:
Dahlia's capital gain or loss from selling 1,550 shares of Microsoft stock must be calculated by determining the gain or loss on each share and then aggregating the results. The sale proceeds amount to $116,250 for 1,550 shares, implying a selling price of $75 per share. This price must be compared to the purchase price (basis) of each share. The shares were purchased on different dates at different prices, and without specific instructions on which shares are being sold (such as FIFO, LIFO, or specific identification), a default method is typically assumed.
For example, if we use the First-In, First-Out (FIFO) method, we start by selling the oldest shares first:
- 650 shares bought for $35,750, or $55 per share
- 550 shares bought for $33,440, or $60.80 per share
- 350 shares out of the 750 bought for $36,450, or $48.60 per share
So the capital gain or loss for each batch of shares is:
- (650 shares × $75) - (650 shares × $55) = $13,000 gain
- (550 shares × $75) - (550 shares × $60.80) = $7,810 gain
- (350 shares × $75) - (350 shares × $48.60) = $9,240 gain
Adding these together, the total capital gain would be $30,050. Dahlia would be liable to pay taxes on this capital gain at her tax rate of 32 percent, resulting in a tax liability of $9,616.
Note that transactions costs, if any, need to be subtracted from the gross gain to derive the net gain, but these are not mentioned in the question.