Question

Hank has a 32% marginal tax rate and has already recognized a STCL of $8,000 and a L TCG of $5,000, both due to the sale of stock. He is considering the sale of an antique clock held for investment that would result in a $7,000 L TCG. What is the increase in his tax liability if he goes ahead with the proposed transaction this year

Answer 1

Answer:

The increase in his tax liability is $1,120

Explanation:

STCL due to sale of stock = $8,000

LTCG due to sale of stock = $5,000

∴Net STCL = $8,000 - $5,000

 Net STCL = $3,000

LTCG on sale of antique clock = $7,000

∴Net LTCG on sale of antique = $7,000 - $3,000 = $4,000

LTCG on sale of antiques is taxed at the rate of 28%

∴ Tax liability = $4,000 * 28%

  Tax liability = $4,000 * 0.28

  Tax liability = $1,120