Question

During 2020, Jackson, who is single, had the following capital gains and losses: Gain from the sale of a coin collection (held 3 years) $ 5,000 Gain from the sale of LMN stock held as an investment (held 6 years) 4,000 Gain from the sale of ABC stock held as an investment (held 10 months) 1,000 Loss from the sale of XYZ stock held as an investment (held 11 months) 3,000 ow much is Jackson's total tax liability for these items if he is in the 22% tax bracket? a) $1,700 b) $1,260 c) $1,440 d) $1,470 e) $840

Answer 1

Answer: Option a) $1700

Explanation:

Computation of Tax liability of Jacksons total tax liability:

Particular	Capital Gain	Tax Rate	Tax liability
Gain from sale of Coin Collection (held 3 years)	$    5,000.00	28% (See note 1)	$   1,400.00
Gain from sale of Stock LMN held as investment for 6 years ( It is long term gain and setoff of $2000 can be taken from sale of stock XYZ) ($4000-$2000)	$    2,000.00	15%	$       300.00
Gain from sale of Stock ABC held as investment for 10 months ( It is short term gain and Fully setoff of $1000 can be taken from sale of stock XYZ) ($1000-$1000)	$                 -	22%	$                -
Tax Liability			$   1,700.00

Note 1: The U.S. Internal Revenue Service (IRS) categorizes gold and other precious metals as “collectibles” which are taxed at a 28% long-term capital gains rate.

Investment held for more than 1 year to be termed as Long term and less than 1 year to be term as short term and accordingly gain arising from such investment will be classified as long term or short term.