Question

Rikki has the following capital gains and losses for the current year: Short-term capital gain $1,000 Long-term capital gain 11,000 Long-term capital loss 3,000 Collectibles gain 8,000 Collectibles loss 2,000 Assume that Rikki is in the 32% marginal tax rate bracket and Rikki's AGI is less than $200,000. Refer to the Capital gains and losses (individuals) table to answer the following question. Due to the effect of the capital gains and losses, Rikki's taxable income is increased by $ and her tax liability is increased by $ Feedback Check My Work Capital gains and losses are determined on an annual basis, aggregated through a netting procedure.

Answer 1

Short-term gain and loss netting:
Net short-term capital gain	1000

Long-term gain and loss netting:
Long-term capital gain	11000
Long-term capital loss	(3000)
Collectibles gain	8000
Collectibles loss	(2000)
Net long-term capital gain	$14000

Therefore,

Rikki's taxable income increases by $15000 (1000+14000)

Short-term capital gain is taxed as ordinary income. Therefore,

Tax on $ 1,000 short-term capital gain = 1000*32% = $320

Long-term capital gain tax rate applies to long-term capital gains. As AGI is below $200000, long term capital gain is tax at 15%

Tax on $ 8,000 Long-term capital gain = 8000*15% = $1200

Collectibles are taxed at 28%. Therefore,

Tax on $ 6,000 Collectibles gain = 6000*28%= 1680

Total increase in tax liability = 320+1200+1680 = $3200