In: Finance
Cynthia has the following income:
Purchased stock 6 months ago for $10,000 and sold it today for $20,000
Sells investment real estate received as a gift from her mother 2 years ago. Mother's basis was $300,000 and sold it for $325,000
Purchased car 3 years agao for $40,000 and sold it today for $30,000
Salary of $40,000
What is Cynthia's net capital gain and why? How much tax does she pay on all of her income? Assume no other income or deductions
Capital gains on selling stock = Selling price of stock - Purchase price = 20000 - 10000 = $ 10,000
Capital gain on real Estate = Sale price - basis of her mother (as she received it as gift, mother's basis become her basis) = 325000 - 300000 = $ 25,000
Capital gain on sale of car = sale price - purchase price = 30,000 - 40,000 = Loss of $ 10,000
Net Capital Gain = Capital gain on sale of stock and real estate - capital loss on sale of car = 10,000 + 25,000 - 10,000 = $ 25,000
She has a salary of 40,000 and a net capital gain of $ 25,000 on which she has to pay tax.
She will have to pay 15.57% effective tax on $ 40,000 (because we get standard deduction of $ 12000 on our salary of 40,000 which makes taxable income to be $ 28,000). First slab is that of 10% so 10% tax on $ 9525 has to be paid first, second tax bracket is 12% so out of 28000 we have paid tax on 9525 so now remaining is 18475 taxable amount, so 12% of 18475 = $2217 tax
Therefore total tax on 40,000 = 952.5 + 2217 = $ 3169.50
With all this in mind, the total amount that you would take home is $33,770.50.
& $ 2394 on net capital gains (since total profit is more than tax allowance of $11700 for Year 2018-19, capital gains tax will have to be paid)