# Capital gains tax question



## Rickson9 (Apr 9, 2009)

I'm not sure how this works. I'm hoping somebody could help me with this:

One share of stock ABC purchased for $1.

A few years later another one share of stock ABC is purchased for $4.

A few years later one share of stock ABC is sold for $5.

Is the capital gain $4 or $1?

Is the capital gain based on a FIFO or LIFO kinda deal - or something else altogether? Thanks in advance!


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## pantograph (Apr 6, 2009)

Average cost. The gain is $2.50.


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## AdamW (Apr 22, 2009)

Rickson9 said:


> Is the capital gain based on a FIFO or LIFO kinda deal - or something else altogether? Thanks in advance!


The government will use your average cost base to determind your taxable gain. In this case it's ($1+$4) / 2 = $2.50 / share.

The gain is therefor $2.50 /share.

You won't have to pay tax on that full amount though. Only 1/2 of your gain ($1.25) will be taxed at your marginal rate.


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## Rickson9 (Apr 9, 2009)

Thanks guys!

With regards to capital gains tax going forward, is the cost-basis of the 1 remaining share of ABC stock at $2.50 (as opposed to $4)?

So if I add another share to the portfolio at $4, capital gains will be ($2.50 + $4)/2 ?


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## AdamW (Apr 22, 2009)

Rickson9 said:


> Thanks guys!
> 
> With regards to capital gains tax going forward, is the cost-basis of the 1 remaining share of ABC stock at $2.50 (as opposed to $4)?
> 
> So if I add another share to the portfolio at $4, capital gains will be ($2.50 + $4)/2 ?


Correct, after your first two purchases your ACB would be $2.50. Then you sell a share leaving you with 1.

Then you buy another at $4 giving you 2 shares with a $3.25 acb each.


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## Rickson9 (Apr 9, 2009)

AdamW said:


> Correct, after your first two purchases your ACB would be $2.50. Then you sell a share leaving you with 1.
> 
> Then you buy another at $4 giving you 2 shares with a $3.25 acb each.


Sweet. Thanks!


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