In: Accounting
Capital Gain Netting Process. Joe sold the following capital assets during 2018:
Description | Date Acquited | Sales Price | Date sold | Adjusted Basis |
100 shares XY corp. | 1/10/95 | $14,000 | 1/12/18 | $1,000 |
50 shares LM Inc | 9/14/17 | 1,900 | 1/12/18 | 4,000 |
140 shares CH corp | 11/20/17 | 3,400 | 4/10/18 | 3,000 |
Gold Necklace | 4/22/03 | 5,000 | 6/30/18 | 1,300 |
Personal Auto | 5/10/12 | 4,000 | 8/31/18 | 6,500 |
Explain the effects of the transactions above on Joe's taxable income and final taxable liability.
SOLUTION:-
Description | Date Acquired | Date sold | Nature (Long term / Short Term) | Sales Price | Adjusted Basis | Gain / (Loss) |
100 Shares XY Crop | 1/10/1995 | 1/12/2018 | Long Term | 14000 | 1000 | 13000.00 |
50 Shares LM Inc. | 9/14/2017 | 1/12/2018 | Short Term | 1900 | 4000 | (2100.00) |
140 Shares CH Crop | 11/20/2017 | 4/10/2018 | Short Term | 3400 | 3000 | 400.00 |
Gold necklace | 4/22/2003 | 6/30/2018 | Long Term | 5000 | 1300 | 3700.00 |
Personal auto | 5/10/2012 | 8/31/2018 | Long Term | 4000 | 6500 | (2500.00) |
Long term Assets:
100 Shares of XY Crop: Profit of 13000 Gold necklace: Gains on collectibles and artworks taxed with a top rate of 28%
Personal auto: Loss on personal - use property aren't tax deductible (IRS Topic number 409)
Short Term Assets:
50 shares of LM Inc: Loss of 2100
140 shares CH Crop: Profit of 400
Net Long term Capital Gain: 13000(Ordinary) and 3700 (Taxed at 28%) = 16700
Net Short Term capital Losses: As per rules of netting short term capital losses first applied to short term capital gain so short term capital losses will be 1700 after adjusting profit of 400 against loss of 2100.
Net capital gain = Net long term capital gain - net short term capital losses
= 16700 - 1700 = 15000
Final tax liability:
Since net capital gain is 15000 and mo other information is provided, I assume that this is only income source and person is filing as a single filer.
So Nil tax rate will be applied on capital gain other than 3700, gain on collectibles, so tax liability will be (1500 - 3700) 0% + 3700 28% = 1036
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