4.1  Calculating Capital Gains and Losses

Gains and losses are calculated by subtracting the cost basis (what was paid for the security at purchase plus any commissions) from the net proceeds (what was received for the security at sale minus any commissions). For example, if an investor paid $20 per share for 100 shares of XYZ and a $40 commission, the cost basis per share will be $20.40. The $40 commission on a per share basis is $0.40, so $2,040 / 100 shares = $20.40 per share. If the investor now sold all 100 shares at $25 for $2,500 with a $40 commission, the proceeds would be $2,500 – $40 commission = $2,460 net. Divided by 100 shares, the net proceeds per share would be $24.60. Therefore, the capital gain per share would be $24.60 – $20.40 = $4.20 per share, or $420 total for the 100 shares.

Appreciation in value on a security is not taxed until the security is actually sold. Before the security is sold, any appreciation is referred to as an unrealized capital gain. When the security is sold, it is referred to as a realized capital gain, and all realized capital gains are taxed. For the ex