Question

Henrich is a single taxpayer. In 2018, his taxable income is $452,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios?

c. His $452,000 of taxable income includes $43,000 of long-term capital gain that is taxed at preferential rates.

d. Henrich has $196,000 of taxable income, which includes $50,400 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000.

Answer 1

c. His $425,000 of taxable income includes $55,000 of long-term capital gain that is taxed at preferential rates:-

Statement showing income tax and net investment income tax liability
Particulars	Amount	Explanation
a Taxable Income	425,000	Given
b. Preferencially taxed income	55,000	Given
c. Income taxed at ordinary rates	370,000	a-b
d. Tax on income at ordinary rates	105499.25	(370,000 - 191,650) * 33% + 46,643.75
e. Tax on preferencially taxed income	8,580	(48,400 * 15%) + (6,600 * 20%)
f. Income tax	114,079.25	d + e
g. Net investment income tax	2,090	(55,000 * 3.8%)
Total Income and net investment income tax	116,169.25	f + g

d. Henrich has $195,000 of taxable income, which includes $50,000 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000:-

Statement showing income tax and net investment income tax liability
Particulars	Amount	Explanation
a Taxable Income	195,000	Given
b. Preferencially taxed income	50,000	Given
c. Income taxed at ordinary rates	145,000	a-b
d. Tax on income at ordinary rates	33,581.75	(145,000 - 91900) * 28% + 18,713.75
e. Tax on preferencially taxed income	7,500	(50,000*15%)
f. Income tax	41,081.75	d + e
g. Net investment income tax	380	10,000 * 3.8%
Total Income and net investment income tax	41,461.75	f + g