Question

Woody and Ruby are married and filing a joint return. They have combined wages of $135,000 in 2020. The couple's 2020 stock transactions are detailed in the following table. In addition, they have $6,200 of qualifying dividends.

Item Date Acquired Date Sold Cost Sales Price Apple stock 02/10/19 01/14/20 $9,000 $5,000 Peach stock 04/23/18 01/05/20 $7,500 $3,000 Cherry stock 10/01/15 03/31/20 $13,000 $19,000 Banana stock 03/31/19 02/18/20 $22,000 $17,000 Orange stock 10/15/19 10/07/20 $9,000 $17,500 Plum stock 09/22/18 05/02/20 $2,000 $6,500

Which of the following statements is true?

Which of the following statements is true?

		They would report a $500 S/T capital gain and $5,500 L/T capital gain.
		They would report a $5,500 L/T capital gain.
		He should report a $500 S/T capital loss and $6,000 L/T capital Gain
		The net gain will be subject to ordinary tax rates.
		None of the statements are correct

Answer 1

TRUE: They would report a $5,500 L/T capital gain.

Becuse as per Tax Laws if any long term capital loss happend on sale of stock then it should be set off against long term capital gains only.

On the other other hand if any short term capital loss happened on sale of stock then it can be set of against any other capital gains whether it may be long term capital gain or short term capital gain.

In our question as details given three transactions are belongs long term capital gains and three transactions belongs to short term capital gains.   

In 1 st Step we can calculate Short term capital Gain / Loss: (which stocks are in hold less than a year):

S.No STOCK NAME SALE PRICE COST GAIN/LOSS

1 Apple Stock 5000 9000 -4000

2 Banana Stock 17000 22000 -5000

3 Orange Stock 17500 9000 8500

TOTAL SHORT TERM LOSS -500   

In the 2nd Step we can calculate Short term capital Gain / Loss: (which stocks are in hold more than a year):

S.No STOCK NAME SALE PRICE COST GAIN/LOSS

1 Peach Stock 3000 7500 -4500

2 Cherry Stock 19000 13000 6000

3 Plum Stock 6500 2000 4500

TOTAL LONG TERM GAIN 6000   

Finally after set off of short term capital of 500 against Long term capital gain of 6000, net long term capital gain 5500.

This ccapital gain amount will be taxed as per applicable slab rates i.e, 0%, 15% or 20%