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    Tax Effect of the Sales of Blocks of Stock

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    Q:
    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?

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    Solution Preview

    a. How much tax will they save if they sell the block of stock that produces a loss?

    IRC section 1211(b) states that "In the case of a taxpayer other than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) the lower of ... ...

    Solution Summary

    Citing authoritative references, this solution illustrates how to compute the tax effect of selling stocks at a gain or a loss.

    $2.19

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