10.1 Investment Taxation
Tax efficiency is an essential component of advisory fiduciary duty. Understanding realized versus unrealized gains, capital loss netting, and wash sale triggers prevents costly client tax penalties.
Key NASAA Exam Takeaways
- Short-term capital gains (assets held 1 year or less) are taxed at ordinary income rates.
- Long-term capital gains (assets held more than 1 year) are taxed at preferential rates (0%, 15%, or 20%).
- Wash Sale Rule: Disallows a capital loss deduction if substantially identical securities or options are purchased within 30 days BEFORE or AFTER the sale date (61-day total window).
- Cost basis reporting defaults to FIFO unless the investor designates specific share identification before trade settlement.
Knowledge Checkpoint • Section 10.1
On October 10, an investor sells 200 shares of ABC stock at a $4,000 loss. On October 25, the investor purchases 200 shares of ABC stock. What is the tax result?