Steve and Jennifer are in the 32% tax bracket for ordinary income and the 15% bracket for capital gains. They have owned several blocks of stock for many years. They are considering the sale of two blocks of stock. The sale of one would produce a gain of $12,000 while the sale of the other would produce a loss of $18,000. For purposes of this problem, ignore itemized deductions, phase-outs and additional investment taxes. They have no other gains and losses this year.a.How much tax will they save if they sell the block of stock that produces a loss?b.How much additional tax will they pay if they sell the block of stock that produces a gain?c.What will be the impact on their taxes if they sell both blocks of stock?
What will be an ideal response?
| a. | $990. A net capital loss is limited to $3,000 per year × .32 = $960. They can carryover the |
| b. | $12,000 × .15 (maximum rate on long-term capital gains) = $1,800. |
| c. | $12,000 gain - $18,000 loss = Net capital loss of $6,000 of which $3,000 is currently deductible to |
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