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This posting addresses tax consequences of Sly & Jennifer.

Sly and Jennifer are in the 33% 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 personal exemptions, itemized deductions, and other phase-outs. 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?

Solution Preview

a. 3,000 * 0.33 = $990. They will save $990. Only $3,000 in losses can be used against other income. The remaining loss must be carried forward to future taxable years.

b. The additional tax is 12,000 * 0.15 = $1,800.

c. The couple will save $990. The net loss is carried forward because it is limited to $3,000 in each taxable ...

Solution Summary

The solution provides an exact breakdown of the taxes that will be saved and how the taxes will be impacted of Sly and Jennifer based on the different scenarios given.