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I have a stock which I paid $3,000 for and it has accumulated another $3,500 in profit. If I ONLY withdraw my original basis of $3,000 will this be taxed as a capital gain? I feel like it wouldn't be because I still have not technically made a profit on the stock. Any help would be greatly appreciated!

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    In which judiskation? And i guess that usually would be look, at a single stock and the profit you gained through it. – chris Sep 15 '18 at 12:08
  • That's not how stock works. There is no profit to be withdrawn, only assets representing an unrealized gain if you sell them. Selling them realizes a gain. – chepner Sep 15 '18 at 17:15
  • Please add a country tag. Capital gains tax rules vary. – Chris W. Rea Sep 15 '18 at 18:02
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Profit is usually calculated on the basis of first identifying the asset, then finding the difference between sale and purchase prices.

For example, if you bought 2 shares at $1 each and sold 1 share at $2, the 1 share represents a capital gain of $2 - $1 = $1 (and you’d still hold the remaining share worth $2). The fact that the $2 you received happens to be the same as your original invested capital is irrelevant.

In your case, you bought shares at $3000. If the shares are now valued at $6500, $3000 worth of those shares would have originally cost you (fraction of bundle * original bundle price) = 3000/6500 * 3000, approx $1385. Your capital gain would have been (sale price - cost), approx $3000 - $1385 = $1615.

So technically, you’ve actually made a profit. You’ll need to include this capital gain in your tax calculations.

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It just doesn't work the way you seem to think. Say for instance (keeping the math simple) you bought 300 shares of stock when it was at $10 per share. Now it's at $20 per share, and you sell 150 shares for $3000. The 150 shares you sold had a cost basis of $1500, so you've made $1500 profit, which is taxed. (Though if that's your only capital gains income, your tax rate will be 0% :-))

The fact that the amount you sold those 150 shares for matches what you paid for 300 shares is irrelevant. You still have the other 150 shares, which you may sell later for a different price, and then will be taxed on the profit, if any.

  • Well, it does work that way in a Roth IRA account. Yes, there's a capital gain on the sale of $3000 of stock, but in Roth, capital gains aren't taxable, only withdrawals above the basis. – Ben Voigt Sep 15 '18 at 18:03
  • @Ben Voigt - The OP has clearly asked about a taxable account and jamesqf has responded with an explanation that addresses the question. Your mention that capital gains in a Roth IRA are not taxable is not applicable. – Bob Baerker Sep 15 '18 at 19:01
  • @BobBaerker: I think it's still worth mentioning, since it might explain the source of OP's confused idea of "withdrawal of basis". – Ben Voigt Sep 15 '18 at 19:14
  • For US (which Q didn't specify) if you have long term cap gain = more than 1 year (which a 2x stock likely is) of only $1500 and your other income less deductions is under $37.1k single/MFS or $75.7k MFJ, then the rate is 0%. Above that the LTCGQD rate is 15% up to about $400k, and above that (which few people are) it's 20%. (Brackets for 2018, they are adjusted each year for inflation.) – dave_thompson_085 Sep 16 '18 at 13:36
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In the US, there are different methods of accounting for sales. FIFO (first in, first out) which means that a sale of stock will be allocated to the shares you bought earliest. LIFO (last in, last out) means that a sale of stock involves selling the shares you bought most recently. FIFO means that sale of stock will be allocated to the shares you bought earliest. LIFO involves selling the shares you bought most recently.

You can also designate what shares you want sold. In order to do so, the IRS requires that you to keep records that identify your cost basis and you must receive confirmation from your broker that verifies that those specific shares were sold. The IRS calls this "specific share identification." Without that confirmation, the IRS will default to FIFO.

The only way that you will be able to withdraw $3,000 without a tax liability would be if at some point you purchased at least $3,000 of this stock and its share price had not gained or lost (at time of sale). Then you would identify those shares and sell them. Otherwise, whatever you sell will incur a capital gain or a capital loss.

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