Question

Problem 2 (30 points)

In Year 1, Jeff and Kim Jenson (married filing a joint return) have $200,000 of taxable income before considering the following transactions:

1. On March 2, Year 1, they sold a painting (art) for $100,000 that was purchased 15 years ago for $90,000.
2. A $12,000 loss on 11/1, Year 1 sale of bonds (acquired on 5/12, 5 years ago);
3. A $4,000 gain on 12/12, Year 1 sale of IBM stock (acquired on 2/5, Year 1);
4. A $17,000 gain on the 10/17, Year 1 sale of rental property. Of the $17,000 gain, $8,000 is reportable as gain subject to the 25% maximum rate and the remaining $9,000 is subject to the 15% maximum rate (the property was acquired on 8/2, 6 years ago. The acquiring date was after 1986);
5. A $12,000 loss on 12/20, Year 1 sale of bonds (acquired on 1/18, Year 1);
6. A $7,000 gain on 8/27, Year 1 sale of BH stock (acquired on 7/30, 10 years ago); and
7. A $11,000 loss on 6/14, Year 1 sale of QuikCo. Stock (acquired on 3/20, 5 years ago).

1) What is the amount and character of each transaction?

2) Complete the required netting procedures and calculate the Jenson's Year 1 taxable income after considering the above transactions.

3). What is Jenson’s Year 1 additional tax liability as a result of the above transactions?

Answer 1

Compete tax liability calculated as below - please see step by step analysis

	OrdinaryIncome ($)	Short Term Capital gain($)	Long term Capital Gain($)]
	28%		25%	15%
Sold Painting
( Purchase$90000 and sale	10,000
$100000
Loss on Sale of Bond				(12,000)
Gain on IBM Stock		4,000
Sale of Rental Property			8,000	9,000
Loss on Sale of Bond		(12,000)
Gain on sale of BH Stock				7,000
Loss on sale of Stock				(11,000)
Total	10,000	(8,000)	8,000	(7,000)
Set of Loss	(7,000)		(5,000)	-
Balance	3,000	-	3,000	-
	(3,000)
Net Balance	-		3,000

Taxable Income before gain($)		2,00,000
Add: Long term capiatal Gain($)		3,000
Taxable Income before gain($)		2,03,000

Tax on Ordinary Income		43,892	( as per Working below)
Tax on capital Gain(25%*3000)		750
Total Tax liability$		44,642

Working- Slab wise
Tax on Ordinary Income	Tax rate	Tax amount ($)
Tax Liability $18450	10%	1,845
Tax Liability $74900-18450	15%	8,468
Tax Liability $151200-$74900	25%	19,075
Tax Liability $20300-$151200	28%	14,504
Tax liability ($)		43,892