Question

In 2018, Tom and Amanda Jackson (married filing jointly) have $200,000 of taxable income before considering the following events: (Use the dividends and capital gains tax rates and tax rate schedules.)

1. On May 12, 2018, they sold a painting (art) for $110,000 that was inherited from Grandma on July 23, 2016. The fair market value on the date of Grandma’s death was $90,000 and Grandma’s adjusted basis of the painting was $25,000.
2. They applied a long-term capital loss carryover from 2017 of $10,000.
3. They recognized a $12,000 loss on the 11/1/2018 sale of bonds (acquired on 5/12/2008).
4. They recognized a $4,000 gain on the 12/12/2018 sale of IBM stock (acquired on 2/5/2018).
5. They recognized a $17,000 gain on the 10/17/2018 sale of rental property (the only §1231 transaction) of which $8,000 is reportable as gain subject to the 25 percent maximum rate and the remaining $9,000 is subject to the 0/15/20 percent maximum rates (the property was acquired on 8/2/2012).
6. They recognized a $12,000 loss on the 12/20/2018 sale of bonds (acquired on 1/18/2018).
7. They recognized a $7,000 gain on the 6/27/2018 sale of BH stock (acquired on 7/30/2009).
8. They recognized an $11,000 loss on the 6/13/2018 sale of QuikCo stock (acquired on 3/20/2011).
9. They received $500 of qualified dividends on 7/15/2018.
   
   After completing the required capital gains netting procedures, what will be the Jacksons’ 2018 tax liability?

Answer 1

ANSWER:

In order to calculate the tax liability we will first netoff all the short term capital gains and losses and long term capital gain and losses to arrive at taxable income.

Considering our case we have :

	Short Term	Long Term Subject to 28%	Long term subject to 25%	long term subject to 0/15/20%	Total Netoff gain / loss
	(d) 4,000 (f)-12,000	(a)   20,000 (b) -10,000	(e) 8,000	(c) -12,000 (e)    9,000 (g)    7,000 (h) -11,000
Total	-8000	10,000	8,000	- 7,000	= 3,000

Total Taxable Income before events           = 200,000

Qualified dividend                                        =        500

Net Long term capital Gain subject to 25% =     3,000

Total Taxable Income after events              = 203,500

Standard deduction for married filing jointly =   12,600

Regular Taxable income after standard deduction   =  190,900 - 3,000 LTCG - 500 QD = $187,400

Income tax at 10 % tax rate ( for income from 0 to 18,450)         =    1,845.0

Income tax at 15% tax rate ( for income from 18,450 to 74,900)   =    8,467.5 for regular Income + $75 for QD(Qualified Dividend)

Income tax at 25% tax rate (for income from 74,900 to 151,200)  = 19,075.0 for regular income + 750 for LTCG(Long term capital gains)

Income tax at 28% tax rate (for income from 151,200 to 230,450)=  10,136.0

Total Income tax liability for Tax year 2018 of Jackson's is

=  $1,845 + $8,467.5 +$75 + $19,075 + $750 +   $10,136 =  $40,348.5