Late in the calendar year, Jessica must choose between selling stock that was purchased 2 years ago for $10,000 and has fallen to $7,000 or a different stock that was purchased 1 year ago for $5,000 and has risen to $7,000
If the investor has no other capital gains, which stock should she sell?
What will be an ideal response?
Answer: The tax laws allow investors to deduct up to $3,000 of long-term capital losses from ordinary income. If Jessica is in the 25% marginal tax bracket, selling the losing stock will save her $3,000 × .25 or $750 in taxes. If she sells the winning stock, she will pay a capital gains tax of 15% ($2,000 × .15 = $300), so she will be better off by $1,050 if she sells the losing stock and keeps the winner.
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