According to GAAP:

If I buy 1000 shares of security A for 50$.

Then later, I sell 1000 shares of security A for 150$.

At the same moment I buy 1000 shares of security B for 150$.

For tax purpose what is my income?

Is it =>

(1000) * (150-50) - (1000) * (150) = -50K

Or the security B buy is not an expense, so it's would only =>

(1000) * (150-50) = 100K

  • 1
    What country are you in? Tax laws vary widely. Welcome to Money.SE – JTP - Apologise to Monica Jun 12 '14 at 22:52
  • I live in Canada. – kkpfm Jun 13 '14 at 0:06
  • Investment is not an expense. – littleadv Jun 13 '14 at 0:10
  • Since you are in Canada, you'll want to know that capital gains (the proceeds from selling an investment for a higher price than you bought it for) are typically taxed more favorably than regular income. – Chris W. Rea Jun 13 '14 at 0:45
  • @littleadv Yes it is. Stick to taxes. Your financial accounting skills leave much to be desired. – user11865 Jun 14 '14 at 5:53

$100k would be your profit and income (sometimes this profit or capital gains may be discounted if held for a certain period). Stock B is not an expense it is an asset. When you sell it you would count the profit or loss from it as your income.

Expenses would include any brokerage you paid to buy and sell the shares.

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  • We would usually say $100k profit and 50% of that is capital gains. It's not reported as income (usually), but is treated differently in your taxes. In his case, it's only $50k in taxable income. – brian Jun 13 '14 at 1:20
  • @brian - In most countries the 50% discount (or other discount) on capital gains usually applies to longer-term gains, usually for assets held for more than 12 months, or else there is no discount. And don't these gains (discounted or not) then get added to your other taxable income so that you pay tax on them based on your tax bracket. So in the end it does get included as part of your income. This is how it is worked out in Australia. Also, there was no country tag when I answered this question. – Victor Jun 13 '14 at 5:51
  • 1
    In Canada there is no short/long term capital gains. It's all capital gains and 50% of it is included in your income. There's a distinction in Canada between the words income, dividends, and capital gains as they're all taxed differently. – brian Jun 13 '14 at 11:55
  • @brian - you just said it yourself, after the discount is applied, the remaining 50% "is included in your income." Dividends and capital gains may have some preferential treatment applied to them (whether a discount, tax credits or something else), but once this is done they are added to ones other taxable income on which tax will be payable on. – Victor Jun 14 '14 at 12:36
  • The tax law has different meanings for "capital gains" and "income". I don't care what people call it as long as they understand the difference. I've already seen a wrong answer here when someone mixed them up. – brian Jun 14 '14 at 13:21

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