Tex Payor bought 1,500 shares of the Bonds4U Mutual Fund, a no load fund, on June 12th for $28 a share and sold the shares the following year on June 11th for $40 a share. This will result in which of the following tax consequences for Tex?
Explanation
Answer: A - If Tex bought 1,500 shares of Bonds4U at $28 on June 12th and sold the shares on June 11th the following year for $40 a share, Tex will have to pay tax on $18,000, taxed as ordinary income at his marginal tax rate. He is taxed on his gain of $40 - $28 = $12 a share times 1,500 shares = $18,000. For tax purposes, his holding period begins the day after his purchase, or June 13th in this example, and ends the day on which sells the shares, or June 11th of the following year, in this case. Since this is less than 12 months, the gain on the sale is considered to be a short-term capital gain, which is taxed as ordinary income.
