Question

Alex, who is single and works as a caddie at a country club, ask you to help her calculate her tax liability.  She tells you about the following transactions:  She earned $32,000 in wages from the country club, $1,000 of interest income from a savings account. In addition, Alex had a $5,000 L/T capital loss carry forward and gained $20,000 on the sale of a stock. Alex purchased the shares on insider information (an illegal activity) and owned for stock 5 days. In June of the current year, Alex's inherited a 1,000 shares of IBM stock from her aunt. The stock FMV at the time of death was $47,000. Her aunt's basis was $5,000. At the end of the year, the stock had appreciated to $75,000, but Alex did not sell his shares. He had itemized deductions that totaled $9,000. What is Alex's tax liability?

Answer 1

Alex tax liability Wages $ 32,000.00 Interest from saving account $   1,000.00 short term capital gain $ 20,000.00 AGI $ 53,000.00 Less: itemized deduction $   9,000.00 brought forward long term capital loss $   3,000.00 Taxable income $ 41,000.00

NOTE:=1. long term capital loss can not be set off from short term capital gain.brought forward long term capital loss of $3000 will be set off against other income and balance $2000 will be carried forward there will be no taxation on appreciation of (47000-5000)=$42000 of IBM stock as these are inheritated. Ans also capital gain of ($75000-47000) will be taxed only when stock is sold