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 2023 assuming they file a joint return?

Answer 1

To calculate Ron and Anne's gross tax liability for 2023, we need to consider the tax rates for dividends and capital gains. Since they have taxable income of only $20,000, which is all ordinary income, we can use the tax rate schedule for single filers. The total gross tax liability for 2023 would be $5,625.

Step-by-step explanation:

To calculate Ron and Anne's gross tax liability for 2023, we need to consider the tax rates for dividends and capital gains. Since they have taxable income of only $20,000, which is all ordinary income, we can use the tax rate schedule for single filers.

First, we need to calculate the capital gains for each asset by subtracting the tax basis from the market value:

• 
  
• L stock: $50,000 - $41,000 = $9,000
• 
  
• M stock: $28,000 - $39,000 = -$11,000 (loss)
• 
  
• N stock: $30,000 - $22,000 = $8,000
• 
  
• O stock: $26,000 - $33,000 = -$7,000 (loss)
• 
  
• Antiques: $7,000 - $4,000 = $3,000
• 
  
• Rental home: $300,000 - $90,000 = $210,000 (but only $30,000 of the gain is taxed at 25%, so $30,000 x 0.25 = $7,500)

Next, we calculate the tax liability for each capital gain using the appropriate tax rate:

• 
  
• L stock: $9,000 x 0.15 = $1,350
• 
  
• N stock: $8,000 x 0.15 = $1,200
• 
  
• Antiques: $3,000 x 0.15 = $450
• 
  
• Rental home: $7,500 x 0.15 + $7,500 x 0.25 = $2,625

Finally, we add up the tax liabilities:

• 
  
• L stock: $1,350
• 
  
• M stock: $0 (no gain)
• 
  
• N stock: $1,200
• 
  
• O stock: $0 (loss)
• 
  
• Antiques: $450
• 
  
• Rental home: $2,625

Hence, their gross tax liability for 2023 would be $5,625.