During 2018, Chester (a married taxpayer filing a joint return) had the followin

ID: 386624 • Letter: D

Question

During 2018, Chester (a married taxpayer filing a joint return) had the following transactions involving capital assets:

Gain on the sale of an arrowhead collection (acquired as an investment at different times but all pieces have been held for more than 1 year) $6,000

Loss on the sale of IBM Corporation stock (purchased 11 months ago as an investment) (4,000)

Gain on the sale of a city lot (acquired 5 years ago as an investment) 2,000

a. Indicate the tax treatment for each item.

Gain on the sale of an arrowhead collection Long-term capital gain

Loss on the sale of IBM Corporation stock Short-term capital loss

Gain on the sale of a city lot Long-term capital gain

Overall, Chester has a long-term capital gain of $.

However, $ of this gain is from collectibles, which are taxed at a maximum rate of 28% .

b. If Chester is in the 32% bracket, how much income tax results? $

c. If Chester is in the 12% bracket (and has taxable income of $75,000), how much income tax results?

A, Chester has a collective gain of $6000, a long term capital gain (LTCG) of $2000 and short term capital loss (STCL) of $4000

Offsetting the STCL against the Collective gain levels = $6000-$4000=$2000 and LTCG of $2000

b. If Chester is in the 32% bracket, how much income tax results? $

Answer:- ($6000 - $4000 +$2000) *0.32 =$4000*0.32=$1280

c. If Chester is in the 12% bracket (and has taxable income of $75,000), how much income tax results?

Answer:- ($6000 - $4000 +$2000) *0.12 =$4000*0.12=$480

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