Ch. 4 Additional Income

In November 2019, Ben and Betty(married, filing jointly) have a long-term capital gain of 54,000 on the sale of stocks. They have no other capital gains and losses for the year. Their ordinary income for the year after the standard deduction is 72,500, making their total taxable income for the year at 126,500 [72,500 + 54,000]. What will be their 2019 tax liability assuming a tax of 8,315 on their 72,500 ordinary income?

126,500 - 78,750 = 47,750 47,750 * 15% = 7,162.5 Total Tax liability: 7,162.5 + 8,315 = 15,477.5

Harold, a single taxpayer, has 30,000 of ordinary income after the standard deduction, and 10,000 in long-term capital gains, for total taxable income of 40,000. For 2019, single taxpayers pay 0% on long-term capital gains up to 39,375 for single filers. Assuming a tax liability of 3,409 on the ordinary income of 30,000, what is Harold's tax?

40,000 - 39,375 = 625 625 * 15% = 93.75 or 94 Total tax liability: 3,409 + 94 = 3,503

Jocasta owns an apartment complex that she purchased 6 years ago for $750,000. Jocasta has made $50,000 of capital improvements on the complex, and her depreciation claimed on the building to date is $128,700. Calculate Jocasta's adjusted basis in the building.

Adjusted basis for Jacosta = 750,000 + 50,000 - 128,700 = 671,300

How long must an asset be held for before the gain or loss is considered long-term?

Assets must be held for more than 1 year to be considered long-term

Rose moved to a nursing home in 2019 and sold both her personal auto and her principal residence. She originally purchased her auto for $20,000 and sold it for $10,000. She originally purchased her residence for $125,000 and sold it for $100,000. Does Rose get a tax deduction on the loss of sale?

Because these sales were of personal use assets, Rose does not get a deduction on the loss.

Bob sells a stock investment for 35,000 cash, and the purchaser assumes Bob's 32,500 debt on the investment. The basis of Bob's stock investment is 55,000. What is the gain or loss realized on the sale?

Gain realized: (35,000 + 32,500) - 55,000 = 12,500

How is gain or loss on the disposition of an asset calculated?

Gain/loss = amount realized - adjusted basis

In 2019, Tim, a single tax payer, has ordinary income of 29,000. In addition, he has 2,000 in short-term capital gains, long term capital losses of 10,000 and long term capital gain of 4,000. What is Tim's AGI for 2019?

Gains: 2,000 + 4,000 = 6,000. Net Loss: 6,000 - 10,000 = (4,000) Because the total loss that can be deducted against income is 3,000, AGI = 29,000 - 3,000 = 26,000. *Note: The left over 1,000 loss, will be carried over next year.

For 2019, what is the tax rate for long term capital gains?

In 2019 the tax rate for long-term capital gains is 0%.

How are net short-term capital gains treated?

Net short-term capital gains are treated as ordinary income.

How do you calculate for adjusted basis of property?

Original basis + capital improvements - accumulated depreciation

What is the amount taxpayers can deduct on capital losses against their ordinary income?

Tax payers are allowed 3,000 dollars to deduct on capital losses.

During the tax year, Ted sells real estate held as an investment for $75,000 in cash, and the buyer assumes the mortgage on the property of $120,000. Ted pays real estate commissions and other transfer costs of $11,000. What is the Amount realized?

Ted's Amount Realized: (75,000 + 120,000) - 11,000 = 184,000

Martin sells a stock investment for $26,000 on August 2, 2019. Martin's adjusted basis in the stock is $15,000. a. If Martin acquired the stock on November 15, 2018, calculate the amount and the nature of the gain or loss. b. If Martin had acquired the stock on September 10, 2017, calculate the amount and nature of the gain of the gain or loss?

a. If acquired on Nov of last year and sold on August the following year, it will be considered a short term gain of $11,000 [26,000 - 15,000] b. If it was acquired on 2017 and sold on 2019, it'll be a long term capital gain of 11,000.

In 2019, Michael has net short-term capital losses of $1,500, a net long-term capital loss of $27,000, and other ordinary taxable income of $45,000. a. Calculate the amount of Michael's deduction for capital losses for 2019. b. Calculate the amount and nature of his capital loss carryforward. c. For how long may Michael carry forward the unused loss?

a. The limit on capital losses is 3,000. So Michael can deduct 3,000 for capital loss. b. Short-term loss: 3000 - 1,500 = 1,500; Long term loss: 27,000 - 1,500 = 25,500. Michael can deduct another 3,000 to long term loss the next few years if there are no other short-term losses. c. Indefinitely