CFA Volume , Book Qs 20 and 21, page 279 of Vol 5
Jose DiCenzo has some securities worth €50,000 that have a cost basis of €75,000. If he sells those securities and can use the realized losses to offset other realized gains, how much can DiCenzo reduce his taxes in the current tax year assuming capital gains are taxed at 30 percent
-> tax saving would be 7,500
In the previous question, suppose DiCenzo sells the securities in the current tax year and replaces them with securities having the same returns. He will then sell the new securities in the next tax year. What is the total tax savings assuming DiCenzo does not reinvest the tax savings?
What would the calculations be in this case, for Year 1 and Year 2?
Year 1: sell the security, realize the loss, tax = 30% x (50,000 - 25,000) = 7,500
How would it look like for Year 2? You now have a (new) security worth 50,000… with a cost basis of 75,000, so again a loss of 25.000?
Could someone pls provide the calculations for Year 1 and Year 2?
Many thanks!
