During the current year, Ron and Anne sold the following assets: (Use the dividends and capital gains tax rates and tax rate schedules.)
Capital Asset | Market Value | Tax Basis | Holding Period | ||
L stock | $ | 50,000 | $ | 41,000 | > 1 year |
M stock | 28,000 | 39,000 | > 1 year | ||
N stock | 30,000 | 22,000 | < 1 year | ||
O stock | 26,000 | 33,000 | < 1 year | ||
Antiques | 7,000 | 4,000 | > 1 year | ||
Rental home | 300,000* | 90,000 | > 1 year | ||
*$30,000 of the gain is 25 percent gain (from accumulated
depreciation on the property).
Ignore the Net Investment Income Tax.
Tax Rates for Net Capital Gains and Qualified Dividends
Rate* | Taxable Income | ||||
---|---|---|---|---|---|
Married Filing Jointly | Married Filing Separately | Single | Head of Household | Trusts and Estates | |
0% | $0 - $78,750 | $0 - $39,375 | $0 - $39,375 | $0 - $52,750 | $0 - $2,650 |
15% | $78,751 - $488,850 | $39,376 - $244,425 | $39,376 - $434,550 | $52,751 - $461,700 | $2,651 - $12,950 |
20% | $488,851+ | $244,426+ | $434,551+ | $461,701+ |
$12,951+ |
a. Given that Ron and Anne have taxable income of only $20,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return?
b. Given that Ron and Anne have taxable income of $400,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return?
As per IRS
Capital gains may be taxed at rates greater than 20% in the following cases:
Capital gain losses can be set off with capital gains. Short term capital loss can be set off with short term and long term gains.
Calculaton of Net Taxable income of Ron and Anne are as follows:
Capital Asset | Short term Gain/(Loss) | Long term Gain/(Loss) | Tax rate |
Stock L | $9,000 | 15% | |
Stock M | -$11,000 | 15% | |
Stock N | $8,000 | 15% | |
-$7,000 | 15% | ||
Antiques | $3,000 | 28% | |
Rental Gain | $180,000 | 15% | |
Un-recaptured gain | $30,000 | 25% | |
Total | $1,000 | $211,000 |
A) Gross tax liability for 2019
Total taxable income = $232,000($20,000+$1,000+$211,000)
Income | Amount | Tax Rate | Tax Liability |
Ordinary Income | $20,000 | 0% | 0 |
Short term gain | $1,000 | 15% | $150 |
Long Term gain | $178,000 | 15% | $26,700 |
un-recaptured gain | $30,000 | 25% | $840 |
Antiques | $3000 | 28% | $7,500 |
Total tax liability | $35,190 |
B) Gross tax liability for 2019
Total taxable income = $612,000($400,000+$1,000+$211,000)
Income | Slab | Amount | Tax Rate | Tax Liability |
Ordinary income | upto $78,750 | $78,750 | 0% | 0 |
Ordinary income | $78,751 - $488,850 | $321,250 | 15% | $48,188 |
Short term gain | $78,751 - $488,850 | $1,000 | 15% | $150 |
Long Term gain | Not Applicable | $178,000 | 15% | $26,700 |
un-recaptured gain | Not Applicable | $30,000 | 25% | $840 |
Antiques | Not Applicable | $3,000 | 28% | $7,500 |
Total liability | $83,378 |
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