Question

Capital Gain Netting Process. M 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 M's taxable income and final taxable liability.

Answer 1

Answer :

Description	Date Acquired	Date sold	Nature (Long term / Short term)	Sales price	Adjusted basis	Gain / (Loss)
100 shares XY Corp	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 Corp	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 Corp profit of 13000
• Gold Necklace : Gains on collectiable and artwork 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 Corp : 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 wil 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

Finally tax liability :

Since net capital gain is 15000 and no other information is provided, i assume that this is only income source and person is filing as a single filer.

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So Nill tax rate wil be applied on capital gain other than 3700, gain on collectibles, so tax liability will be (15000 - 3700)*0% + 3700 * 28% = 1036.