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.

a. 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 2019 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Gross Tax liability:

b. Given that Ron and Anne have taxable income of $400,000 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Gross Tax Liability:

Answer 1

If the capital gain is for shot term then the tax brackets are comes under normal income tax brackets.

10% - for 0 - $19400

12% for $19401 - $ 789950

22% for $78951 - $168400

And if the capital assets are long term then the tax brackets are as shown below if file jointly

That is, 0% for 0 to $78750

15% for $78750 to $488850.

Capital Asset	Market Value	Tax Basis	Capital Gain	Holding Period
L Stock	50000	41000	9000	More than 1 year	Long Term Capital
M Stock	28000	39000	-11000	More than 1 year	Long Term Capital
N stock	30000	22000	8000	Less than one year	Short Term Capital
O Stock	26000	33000	-7000	Less than one year	Short Term Capital
Antiques	7000	4000	3000	More than 1 year	Long Term Capital
Rental Income	300000	90000	210000	More than 1 year	Long Term Capital

Long Term Capital Gain

L Stock	50000	41000	9000	More than 1 year
M Stock	28000	39000	-11000	More than 1 year
Antiques	7000	4000	3000	More than 1 year
Rental Income	300000	90000	180000	More than 1 year	Gain on Accumulated depreciation is deducted from the sale price
Total			181000

Short Term Capital Gain

N stock	30000	22000	8000	Less than one year
O Stock	26000	33000	-7000	Less than one year
Total			1000

A.

Normal Taxable income of Ron and Anne for 2019		20000.00
Add	Short Term Capital gain	1000.00
	Total Taxable income before Long term capital gain
Add	Long Term Capital Gain	181000.00
	Total Tax liability for 2019		202000.00

B.

Normal Taxable income of Ron and Anne for 2019		400000.00
Add	Short Term Capital gain	1000.00
	Total Taxable income before Long term capital gain
Add	Long Term Capital Gain	181000.00
	Total Tax liability for 2019		582000.00