Question

Ron and Anne have taxable income of $400,000 (all ordinary) before considering the tax effect of their asset sales (shown below).  What is their tax liability for 2018 assuming they file a joint return?

Asset	Market Value	Tax Basis	Gain/loss	Held
IBM stock	$50,000	$41,000		> 1 year
Painting	120,000	75,000		> 1 year
XOM stock	10,200	2,000		< 1 year
Rental House	150,000	110,000		> 1 year
Orion stock	26,000	33,000		< 1 year
Martel Stock	28,000	39,000		> 1 year
Quark stock	22,000	16,000		< 1 year
Barter stock	42,300	64,000		> 1 year

$25,000 of the rental house gain is 25% gain

The couple also had a $10,000 long term capital loss carryforward from prior years.

Tax Liability

Show your work/netting of gains and losses

Answer 1

Net position of the asset sales is below:

Asset	Market value	Basis	Gain/ (loss)	STCG/ (STCL)	LTCG/ (LTCL)
IBM stock	50,000	41,000	9,000		9,000
Painting	120,000	75,000	45,000		45,000
XOM	10,200	2,000	8,200	8,200
Rental house	150,000	110,000	40,000		40,000
Orion stock	26,000	33,000	(7,000)	(7,000)
Martel stock	28,000	39,000	(11,000)		(11,000)
Quark stock	22,000	16,000	6,000	6,000
Barter stock	42,300	64,000	(21,700)		(21,700)
Loss carryover					(10,000)
Totals	448,500	380,000	68,500	7,200	51,300

Short-term capital gain is taxable at ordinary tax rates applicable. Long-term capital gains are taxable at 15%, 25% and 28%. And the bifurcation is below:

Asset	15% rate	25% rate	28% rate
IBM stock	9,000
Painting			45,000
XOM
Rental house	15000	25000
Orion stock
Martel stock	(11,000)
Quark stock
Barter stock	(21,700)
Loss carryover	(10,000)
Totals	(18,700)	25,000	45,000

15% bracket loss is netted first with 28% rate, net 28% gain = 45,000 - 18,700 = 26,300. Tax at 28% = 7,364

Tax at 25% on 25,000 gain = 6,250

Total tax liability is:

Ordinary income	400,000
Short term capital gain	7,200
Income taxable at ordinary rates	407,200
Tax on above income	93,899
Tax 25%	6,250
Tax 28%	7,364
Total 2018 tax	107,513