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 $ 54,000 $ 43,000 > 1 year M stock 32,000 41,000 > 1 year N stock 34,000 24,000 < 1 year O stock 30,000 35,000 < 1 year Antiques 11,000 6,000 > 1 year Rental home 304,000* 92,000 > 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 $24,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2020 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Answer 1

Answer to the above question:

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 bbusiness 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 rate system. These two capital gains are taxed differently. If the capital gain is for short term then the tax brackets are come under normal income tax brackets.

Capital Asset	Market Value (a)	Tax Basis (b)	Capital Gain (a)-(b)	Holding Period
L Stock	$ 54,000	$ 43,000	$ 11,000	>1 Long term capital
M Stock	$ 32,000	$ 41,000	$ -9,000	>1 Long term capital
N Stock	$ 34,000	$ 24,000	$ 10,000	<1 Short term capital
O Stock	$ 30,000	$ 35,000	$ -5,000	<1 Short term capital
Antiques	$ 11,000	$ 6,000	$ 5,000	>1 Long term capital
Rental Income	$ 304,000	$ 92,000	$ 212,000	>1 Long term capital

Long Term Capital

L Stock	$ 54,000	$ 43,000	$ 11,000	More than 1 year
M Stock	$ 32,000	$ 41,000	$ -9,000	More than 1 year
Antiques	$ 11,000	$ 6,000	$ 5,000	More than 1 year
Rental Income	$ 304,000	$ 92,000	$ 212,000	More than 1 year
Net Gain			$ 219,000

Net Long Term Capital Gain = $ 219,000

Short Term Capital

N stock	$ 34,000	$ 24,000	$ 10,000	Less than 1 year
O Stock	$ 30,000	$ 35,000	$ -5,000	Less than 1 year
Net Gain			$ 5,000

Net Short Term Capital Gain = $ 5,000

(A)

Particulars	Amount
Normal taxable income of Ron and Anne for 2020	$ 24,000
Add: Short Term Capital Gain	$ 5,000
Total taxable income before long term capital gain	$ 29,000
Add: Long Term Capital Gain	$ 219,000
Total tax liability for 2020	$ 248,000

Therefore, Total Tax Liability for 2020 is $ 248,000 Answer.