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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	$	54,800	$	43,400	> 1 year
M stock		32,800		41,400	> 1 year
N stock		34,800		24,400	< 1 year
O stock		30,800		35,400	< 1 year
Antiques		11,800		6,400	> 1 year
Rental home		304,800*		92,400	> 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 $24,800 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2018 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

b. Given that Ron and Anne have taxable income of $404,800 (all ordinary) before considering the tax effect of their asset sales, what is their gross tax liability for 2018 assuming they file a joint return? (Round all your intermediate computations to the nearest whole dollar amount.)

Answer 1

1. Determination of gross tax liability for 2018 assuming they file a joint return provided Ron and Anne have taxable income of only $24,800 (all ordinary) before considering the tax effect of their asset sales. ($)

Capital Asset	Market Value	Tax Basis	Holding period	Long term capital gain/ (loss)	Short term capital Gain/ (loss)	Long term capital Gain Tax rate
L stock	54800	43400	> 1 year	11400		15%
M stock	32800	41400	> 1 year	(8600)		15%
N stock	34800	24400	< 1 year		10400
O stock	30800	35400	< 1 year		(4600)
Antiques	11800	6400	> 1 year	5400		28%
Rental Home	304800	92400	> 1 year	182400 30000*		15% 25%
Net Gain/(Loss)				220600	5800

**$30,000 of the gain is 25 percent gain (from accumulated depreciation on the property).

Computation of Tax liability of Ron and Anne

	Income	Tax
Long term capital gain@15%	185200	27780
Long term capital gain@28%	5400	1512
Long term capital gain@25%	30000	7500
Gross Tax Liability		36792

B. Gross tax liability for 2018 assuming they file a joint return

Ordinary Income( including short term gain)= 404800+5800= $ 410600

After the standard deduction of $24,000 in the year 2018, the Tax liability would be $87,091 as per the prevailing income tax rates in the year 2018.