Step-by-step explanation:
To calculate the gain or loss and the character of the gain/loss for Kevin's stock transactions, we need to consider the cost basis (purchase price plus brokerage fees) and the selling price minus the brokerage fees. Here's the breakdown:
Purchase:
- Number of shares: 200
- Purchase price per share: $50
- Total cost of shares: 200 shares * $50/share = $10,000
- Brokerage fee for purchase: $30
Sale:
- Number of shares sold: 200
- Selling price per share: $75
- Total selling price of shares: 200 shares * $75/share = $15,000
- Brokerage fee for sale: $130
Now, let's calculate the gain or loss and determine the character of the gain/loss:
1. Calculate the Cost Basis:
Cost basis = Total cost of shares + Brokerage fee for purchase
Cost basis = $10,000 + $30 = $10,030
2. Calculate the Net Proceeds:
Net proceeds = Total selling price of shares - Brokerage fee for sale
Net proceeds = $15,000 - $130 = $14,870
3. Calculate the Gain or Loss:
Gain or loss = Net proceeds - Cost basis
Gain or loss = $14,870 - $10,030 = $4,840
4. Determine the Character of the Gain/Loss:
To determine the character of the gain/loss, we need to consider whether the holding period of the shares was short-term or long-term. If the holding period was one year or less, it is considered a short-term gain/loss. If the holding period was more than one year, it is considered a long-term gain/loss.
Since the purchase date is January 1, 20x3, and the sale date is December 12, 20x3, the holding period exceeds one year. Therefore, the gain/loss is considered a long-term gain/loss.
So, Kevin must report a long-term gain of $4,840 on his 20x3 tax return.