Question

During the current year, Ron and Anne sold the following assets:

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). Ron began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years. Ron owned each of the assets below for several years. In the current year, Ron sold the following business assets: Asset Original Cost Accumulated Depreciation Gain/Loss Machinery $ 30,000 $ 7,000 $ 10,000 Land 40,000 0 20,000 Building 90,000 20,000 (5,000 ) Given that Ron and Anne have W-2 income of $224,400 and qualified dividend income of $30,000 before considering the tax effect of their asset sales, what is their gross tax liability for 2019 assuming they file a joint return? Prepare Form 1040, Schedule D, Schedule D worksheet, Form 4797 and any other forms required.

Answer 1

Gross tax liability $ 29,080
Description Short-Term Long-Term 28% Long-Term 25% Long-Term 0/15/20%Stock N$8,000 Stock O$(7,000) Step 1:$1,000 Antiques $3,000 Unrecaptured §1250 Gain $30,000 Remaining Gain from Rental Property $180,000 Stock L $9,000 Stock M $(11,000)Step 2: $178,000 Steps 3(B): Go to step 6 Step 4 : Go to step 5 Step 5$1,000 $3,000 $30,000 $178,000
Ron and Anne's ordinary income will increase from $20,000 to $21,000 due to their $1,000 net short-term capital gain. Ron and Anne's gross tax liability of $29,080 is computed as follows:

Amount and Type of IncomeApplicable RateTaxExplanation$19,400; ordinary10%$1,940$19,400 × 10%. The first $19,400 of Ron and Anne's $21,000 of ordinary income is taxed at 10% (see MFJ tax rate schedule for this and other computations).$1,600; ordinary12%$192$1,600 × 12%. Ron and Anne's remaining $1,600 of ordinary income ($21,000 - $19,400) is taxed at 12%.$30,000; 25% rate capital gain12%$3,600$30,000 × 12%. The 25% gains are taxed at the lower of Ron and Anne's marginal tax rate (12%) or 25%. In this case, the $30,000 of gains will be taxed at 12%.$3,000; 28% rate capital gains12%$360$3,000 × 12%. The 28% gains are taxed at the lower of Ron and Anne's marginal tax rate (12%) or 28%. In this case, the $3,000 of gains will be taxed at 12%.$24,750; 0/15/20% rate capital gains0%$0$24,750 × 0%. $24,750 ($78,750 - $21,000 ordinary income - $30,000 25% capital gain - $3,000 28% capital gain) of 0/15/20% rate capital gain fits into the remaining space below the maximum zero rate amount ($78,750), so it is taxed at 0%.$153,250; 0/15/20% rate capital gains15%$22,988$153,250 × 15%. All of the remaining $153,250 ($178,000 - $24,750) of 0/15/20% capital gain is taxed at 15% because Ron and Anne's taxable income (including the gains) is above the maximum zero rate amount ($78,750) and below the maximum 15-percent rate amount ($488,850).Gross tax liability $29,080