Question

During the current year, Ron and Anne sold the following assets: (Use the dividends and capital gains tax rates and tax rate schedules.) - United States

Capital Asset	Market Value		Tax Basis		Holding Period
L stock	$	53,000	$	42,500	> 1 year
M stock		31,000		40,500	> 1 year
N stock		33,000		23,500	< 1 year
O stock		29,000		34,500	< 1 year
Antiques		10,000		5,500	> 1 year
Rental home		303,000*		91,500	> 1 year

*$30,000 of the gain is 25 percent gain (from accumulated depreciation on the property).

Ignore the Net Investment Income Tax.

a. Given that Ron and Anne have taxable income of only $23,000 (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 $403,000 (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?

Answer 1

Capital Asset and Capital Gain Tax

An asset are those assets which include property of any kind which is held by the assessee whether connected with business or profession or not connected with business or profession.

If the capital assets are hold for more than one year then it is termed as long term capitals and if the capital assets are sold for less than one or exact one year is termed as short term capitals.

The income arises from the above sales would result long ters and short term capital gains.

In US federal Tax rates system. These two capital gains are taxed diffrently. IF the capital gain is for shot term then the tax brackets are comes under normal income tax brackets.

Ie. 10% - for 0 - $19400

12% for $19401 - $ 789950

22% for $78951 - $168400

And if the capital assets are long term then the tax brackets are as shown below if file jointly

That is, 0% for 0 to $78750

15% for $78750 to $488850.

As per the question, the following details are arrived

capital Asset	Market Value	Tax Basis	Capital Gain	Holding Period
L Stock	53000	42500	10500	More than 1 year	Long Term Capital
M Stock	31000	40500	-9500	More than 1 year	Long Term Capital
N stock	33000	23500	9500	Less than one year	Short Term Capital
O Stock	29000	34500	-5500	Less than one year	Short Term Capital
Antiques	10000	5500	4500	More than 1 year	Long Term Capital
Rental Income	303000	91500	211500	More than 1 year	Long Term Capital
Long Term Capital
L Stock	53000	42500	10500	More than 1 year
M Stock	31000	40500	-9500	More than 1 year
Antiques	10000	5500	4500	More than 1 year
Rental Income	303000	91500	181500	More than 1 year	Gain on Accumulated depreciation is deducted from the sale price
	Net Long term Capital gain	187000
Short Term Capital
N stock	33000	23500	9500	Less than one year
O Stock	29000	34500	-5500	Less than one year
	Net Short Term Capital Gain	4000

Answer

Qn.A

Normal Taxable income of Ron and Anne for 2019				$23,000
Add
	Short Term Capital gain			$4,000
	Total Taxable income before Long term capital gain	$27,000
Add	Long Term Capital Gain			$187,000
	Total Tax liablity for 2019				$214,000

Qn B

Normal Taxable income of Ron and Anne for 2019				$403,000
Add
	Short Term Capital gain			$4,000
	Total Taxable income before Long term capital gain	$407,000
Add	Long Term Capital Gain			$187,000
	Total Tax liablity for 2019				$594,000