The Maximize Gain Tax Strategy

Navarre Trousselot profile picture Navarre Trousselot June 5, 2024

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The Maximize Gain strategy is a method of calculating capital gains. It is used when investors are trying to maximize their capital gain.

The strategy is simple. When calculating the capital gain, you process trades in order of the price you bought them for, with the lowest price parcel coming first.

An example of Maximize Gain:

Purchases:

  • Buy 10 shares at $1 each — Total cost: $10
  • Buy 10 shares at $5 each — Total cost: $50

Sale:

  • Sell 10 shares at $4 each — Total sale value: $40

Maximize Gain Calculation:

  • Lowest price parcel: 10 shares at $1 each — Total cost: $10
  • Sold 10 shares for $40

Capital Gain:

  • Gain: $40 (sale value) — $10 (cost) = $30

A more complex Maximize Gain example.

Suppose we buy the following parcels:

  • Buy 10 shares at $2 each — Total: $20
  • Buy 5 shares at $5 each — Total: $25
  • Buy 10 shares at $3 each — Total: $30

This gives us a total of 25 shares at different price points.

Now, let’s sell 13 shares at $4 per share using the Maximize Gain method.

First Parcel (a):

  • 10 shares at $2 each.
  • Total cost: $20
  • Sale value: 10 shares x $4 = $40
  • Gain: $40 — $20 = $20

Second Parcel (b):

  • Remaining 3 shares to be sold.
  • Next parcel: 10 shares at $3 each.
  • Cost for 3 shares: 3 shares x $3 = $9
  • Sale value: 3 shares x $4 = $12
  • Loss: $12 — $9 = $3

Total Capital Gain:

  • Gain from first parcel: $20
  • Gain from second parcel: $3
  • Total gain: $20 + $3 = $23

Therefore, the total capital gain from selling 13 shares is $23.

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Navarre Trousselot profile picture

Navarre Trousselot

Navarre is the Founder of Navexa — a portfolio analytics service made for Australian investors. Navarre left a lucrative corporate developer job to combine two of his passions; investing and entrepreneurship. He created Navexa because he couldn’t find a portfolio analytics service that met his own high standards. Now, he’s focused on helping as many Australians as possible get more from their portfolios through the smart and creative use of data. Follow Navarre on Twitter and connect with him on LinkedIn.


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