During the last 30 days, the fund held 13.52375 shares (original investment of $2,500) and sold them on 01/17/2020 at 9:40 AM when the price in the market hit the target under the value investment principle at $207.17. The value investing principle (simply stated) required the share price to hit the prior peak price which was $206.46. However, on that morning, the share price instantly jumped past $206.46 to $207.17 triggering the sale of the stock. The gain on the sale net of costs of $1.00 per share to buy and $1.00 per share to sell was $288.19. The stock was purchased on 10/23/19 at $183.86.
Capital gains are earnings on investments in excess of the cost basis or purchase price plus transaction fees. ‘Capital gains‘ is a commonly used term in stock transactions. This information is reported on Schedule D of the taxpayer’s return.
It’s the end of the quarter and time to report on the railroad fund. The fund started on 10/21/19 but I’m resetting the fund’s timing to the end of the quarter so that future quarterly reports tie to actual calendar quarters. The market value of the fund is $10,392.74 and I started out with $10,000 71 days ago. Thus, I’ve earned approximately $5.53 per day since inception. My cost basis is currently $10,270.32 driven by one sale of stock on 11/15/19 and receipt of dividends. Thus, since inception, this fund is growing at a slightly higher rate than 20.13% annualized.
Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.
When a product or investment is sold, the seller must realize a gain or loss from the transaction. The actual sale or transaction will trigger the gain or loss realized. In effect, the receipt of cash sets the threshold for a ‘REALIZED’ amount. Unrealized gains or losses are potential i.e. on paper transactions.