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Series 7 practice questionhardTax Implications — Capital Gains

An investor buys 300 shares of QRS stock at $50 on June 1, 2025. On May 15, 2026, the investor sells 100 shares at $70. On June 5, 2026, the investor sells another 200 shares at $65. How are the gains characterized?

  1. AAll gains are short-term
  2. BAll gains are long-term
  3. CThe first sale is short-term ($2,000); the second sale is long-term ($3,000)✓ Correct answer
  4. DThe first sale is long-term ($2,000); the second sale is short-term ($3,000)
Explanation

Why C — The first sale is short-term ($2,000); the second sale is long-term ($3,000)

The holding period begins the day after purchase (June 2, 2025). For long-term treatment, shares must be held more than one year. The first sale on May 15, 2026 is 11 months and 13 days — short-term: ($70-$50) x 100 = $2,000 STCG. The second sale on June 5, 2026 is more than one year — long-term: ($65-$50) x 200 = $3,000 LTCG. A few days can make a significant tax difference.

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