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	$	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.

Given that Ron and Anne have taxable income of only $20,000 (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?

Answer 1

SOLUTION:- Capital gains may be taxed at rates greater than 20% in the following cases:

1. The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.
3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.

Capital gain losses can be set off with capital gains. Short term capital loss can be set off with short term and long term gains.

Calculaton of Net Taxable income of Ron and Anne are as follows:

Capital Asset	Short term Gain/(Loss)	Long term Gain/(Loss)	Tax rate
Stock L		$9,000	15%
Stock M		-$11,000	15%
Stock N	$8,000		15%
	-$7,000		15%
Antiques		$3,000	28%
Rental Gain		$180,000	15%
Un-recaptured gain		$30,000	25%
Total	$1,000	$211,000

Gross tax liability for 2020

Total taxable income = $232,000($20,000+$1,000+$211,000)

Income	Amount	Tax Rate	Tax Liability
Ordinary Income	$20,000	0%	0
Short term gain	$1,000	15%	$150
Long Term gain	$178,000	15%	$26,700
un-recaptured gain	$30,000	25%	$840
Antiques	$3000	28%	$7,500
Total tax liability			$35,190