Question

Samuel Jenkins made two investments; the first was 14 months ago and the second was two months ago. He just sold both investments and has a capital gain of $9,500 on each. If Samuel is single and has taxable income of $40,000, what will be the amount of capital gains tax on each investment? See Capital Gains table and Taxable income rate table.

Capital Gains Tax Investment 1 (held 14 months) Investment 2 (held 2 months)

Answer 1

Solution:

a. Capital gain tax on investment 1 (held 14 months) = Long-term capital gain * 15%

   = $9,500 * 15%

   = $1,425

b. Capital gain tax on investment 2 (held 2 months) = 9,500* 22%

= $2,090

Workings: a. As Samuel's taxable income is $40,000 , his long-term capital gain are taxable at 15% tax bracket ($38,600 to 425,800).

b. Short-term capital gain are taxable according to the ordinary income tax rates. His total taxable income ($40,000 + 9,500 = $49,500 ) falls under 22% of tax bracket ($38,700 to 82,700)

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