Question

Schedule Married Joint

Taxable income over: But not over: The tax is:

$0 $18,650 10% of taxable income

$18,650 $75,900 $1,865 plus 15% of the excess over $18,650

$75,900 $153,100 $10,452.50 plus 25% of the excess over $75,900

$153,100 $233,350 $29,752.50 plus 28% of the excess over $153,100

$233,350 $416,700 $52,222.50 plus 33% of the excess over 233,350

$416,700 $470,700 $112,728.00 plus 35% of the excess over $416,700

$470,700 - $131,628.00 plus 39.6% of the excess over $470,700

During the current year, Ron and Anne sold the following assets:

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.

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 2017 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Answer 1

a. Ron and Anne's netting process is calculated as follow:
	Description	Short term	Long term overall	Long term -28%	Long term 25%	Long term 15%
	Stock N	$8,000
	Stock O	($7,000)
	Short term Capital gain	$1,000
	Antiques		$3,000	$3,000
	Uncaptured sec 1245 Gain		$30,000		$30,000
	Remaining gain from Rental Property		$180,000			$180,000
	Stock L		$9,000			$9,000
	Stock M		($11,000)			($11,000)
	Long term Capital gain		$211,000	$3,000	$30,000	$178,000
	Ordinary income of Ron and Anne will increase by $1000 due to short term capital gain. Now the ordinary income is $401,000
	Calculation of Tax amount
	Amount and Type of income	Rate	Tax	Details
	$18,650	10%	$1,865	on the first $18,650
	Ordinary Income
	$57,250	15%	$8,587.50	On the next $57250 (75900-18650)
	Ordinary Income
	$77,200	25%	$19,300	On the next $77200(153100-75900)
	Ordinary Income
	$80,250	28%	$22,470	On the next $80250(233350-153100)
	Ordinary Income
	$167,650	33%	$55,324.50	On the next $167650(401000-233350)
	Ordinary Income
	$3,000	28%	$840
	Long term capital gain
	$30,000	25%	$7,500
	Long term capital gain
	$178,000	15%	$26,700
	Long term capital gain
	Gross Tax liability		$142,587