Cost Basis

C is correct. Cost basis includes the original purchase price ($8,000), purchase commission ($25), AND reinvested dividends ($1,500) for a total basis of $9,525. Reinvested dividends were already taxed as income when received, so they increase basis to avoid double taxation. The sale commission ($30) reduces net proceeds (not basis). Calculation: Proceeds = (shares × $75) - $30 commission. Gain = Net Proceeds - $9,525 basis.

A is incorrect because it omits both the purchase commission and reinvested dividends. B is incorrect because reinvested dividends are NOT taxed again; they increase cost basis since tax was already paid when reinvested. D is incorrect because the purchase commission increases basis (rather than reducing proceeds), and it omits the reinvested dividends entirely.

C is correct. Cost basis includes the purchase price, purchase commission (and any other acquisition fees), and reinvested dividends. Reinvested dividends increase basis because tax was already paid on that income when received, so it should not be taxed again as capital gain. This prevents double taxation.

A is incorrect because it omits commissions and reinvested dividends. B is partially correct but omits reinvested dividends. D is incorrect because the sale commission reduces proceeds (not basis); only the purchase commission is added to basis.

A is correct. Step-by-step calculation:

Cost Basis (for the 500 original shares):
- Purchase: 500 shares × $30 = $15,000
- Purchase commission: $50
- Reinvested dividends: $2,000 (increases total portfolio basis)
- Total cost basis = $17,050

Sale Proceeds (Net):
- Gross proceeds: 500 shares × $45 = $22,500
- Sale commission: $75
- Net proceeds = $22,425

Capital Gain = $22,425 - $17,050 = $5,375

Note: The reinvested dividends increase the overall cost basis of the investment. Even though they purchased additional shares, the $2,000 was already taxed as dividend income when received, so it increases basis to prevent double taxation.

B ($5,425) incorrectly omits the sale commission from proceeds. C ($7,425) incorrectly omits the reinvested dividends from basis. D ($7,500) incorrectly omits both commissions and reinvested dividends.

C is correct (the EXCEPT answer). When a security is inherited, the cost basis is NOT the deceased's original purchase price. Instead, it receives a "step-up in basis" to the fair market value on the date of death (or alternate valuation date). This eliminates all unrealized capital gains, providing significant tax benefits to heirs.

A is accurate: cost basis includes purchase price plus acquisition costs (commissions, fees). B is accurate: reinvested dividends were already taxed as income, so they increase basis to avoid being taxed again as capital gains. D is accurate: when a wash sale occurs, the disallowed loss is added to the cost basis of the replacement shares, which defers (but doesn't eliminate) the tax benefit.

B is correct. Only statements 2 and 4 are accurate.

Statement 1 is FALSE: The $5,200 loss is NOT currently deductible because a wash sale occurred. Substantially identical shares were repurchased within 30 days of the sale (June sale, July repurchase = less than 30 days), so the loss is disallowed.

Statement 2 is TRUE: This is a wash sale. The same stock was sold at a loss and repurchased within the 30-day window (actually within about 30 days, triggering the wash sale rule which applies to purchases 30 days before OR after the sale).

Statement 3 is FALSE: The cost basis is NOT simply $22,100 ($22,000 + $100 commission). Because of the wash sale, the disallowed $5,200 loss must be added to the basis of the replacement shares.

Statement 4 is TRUE: The cost basis of the July shares = $22,100 (purchase + commission) + $5,200 (disallowed loss) = $27,300. This preserves the tax benefit by increasing basis, which will reduce gain (or increase loss) when eventually sold.