Cost Basis: Purchases
Chapters in this video
- 0:00 The commission trap question: hurt or help
- 1:13 Cost basis formula: purchase price plus fees
- 2:57 Net proceeds formula: sale price minus fees
- 4:46 Capital gain formula and the taxpayer-favor rule
- 5:44 Multiple lots and the three identification methods
- 6:57 FIFO: the firm and exam default
- 7:23 Rapid-fire exam recap
What this video covers
- Why commissions get added to purchase price to raise cost basis, and why that ultimately helps the taxpayer
- How net proceeds are calculated by subtracting selling commissions from the sale price
- The complete capital gain formula from purchase through sale, and why forgetting either commission is the number one exam trap
- Why both cost basis and net proceeds adjustments work in the taxpayer's favor to shrink taxable gains
- The three identification methods for multiple share lots: first in, first out (FIFO), last in, first out (LIFO), and specific identification
- Why FIFO is the firm and exam default whenever a question does not explicitly state which shares were sold
- How to execute the full multi-step math under pressure when test makers plant the wrong answer that results from skipping one commission
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