Question

During the current year, Ron and Anne sold the following assets: (Use the dividends and capital gains tax rates and tax rate schedules.)

Capital Asset	Market Value		Tax Basis		Holding Period
L stock	$	50,000	$	41,000	> 1 year
M stock		28,000		39,000	> 1 year
N stock		30,000		22,000	< 1 year
O stock		26,000		33,000	< 1 year
Antiques		7,000		4,000	> 1 year
Rental home		300,000*		90,000	> 1 year

*$30,000 of the gain is 25 percent gain (from accumulated depreciation on the property).

Ignore the Net Investment Income Tax.

a. Given that Ron and Anne have taxable income of only $20,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return?

b. Given that Ron and Anne have taxable income of $400,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Answer 1

a.

Particular	Amount
Normal Taxable income of Ron and Anne for 2019	20000
Short Term Capital gain	1000
Total Taxable income before Long term capital gain	21000
Long Term Capital Gain	181000
Total Tax liablity for 2019	202000

b.

Particular	Amount
Normal Taxable income of Ron and Anne for 2019	400000
Short Term Capital gain	1000
Total Taxable income before Long term capital gain	401000
Long Term Capital Gain	181000
Total Tax liablity for 2019	582000

Working -

Capital Asset and Capital Gain Tax

An asset are those assets which include property of any kind which is held by the assessee whether connected with business or profession or not connected with business or profession.

If the capital assets are hold for more than one year, then it is termed as long-term capitals and if the capital assets are sold for less than one or exact one year is termed as short-term capitals.

The income arises from the above sales would result long term and short-term capital gains.

In US federal Tax rates system. These two capital gains are taxed differently. IF the capital gain is for short- term then the tax brackets are coming under normal income tax brackets.

Capital Asset	Market Value	Tax Basis	Capital Gain	Holding Period
L Stock	50000	41000	9000	More than 1 year	Long Term Capital
M Stock	28000	39000	-11000	More than 1 year	Long Term Capital
N stock	30000	22000	8000	Less than one year	Short Term Capital
O Stock	26000	33000	-7000	Less than one year	Short Term Capital
Antiques	7000	4000	3000	More than 1 year	Long Term Capital
Rental Income	300000	90000	210000	More than 1 year	Long Term Capital
Long Term Capital
L Stock	50000	41000	9000	More than 1 year
M Stock	28000	39000	-11000	More than 1 year
Antiques	7000	4000	3000	More than 1 year
Rental Income	300000	90000	180000	More than 1 year	Gain on Accumulated depreciation is deducted from the sale price
	Net Long term Capital gain		181000
Short Term Capital
N stock	30000	22000	8000	Less than one year
O Stock	26000	33000	-7000	Less than one year
	Net Short Term Capital Gain		1000