Question

Theodoor had a good year in 2018 managing investments. Theodoor’s adjusted gross income was $212,000 and his taxable income was $200,000. The results of his investment activities were as follows:
Interest income from Bailey Bank	$ 4,700
Dividend income (qualifying)	5,400
Long-term capital gains	11,200
Short-term capital gains	200

      How much are Theodoor’s tax on adjusted net capital gain and 3.8% tax on investment income, respectively? SHOW WORK

a. $1,680; $456                        b. $2,490; $-0-                      c. $2,490; $456                    d. $1,680; $-0-

Answer 1

Ans is C $2,490; $456

Explanation: Adjusted net capital gain is $5400+11200 = 16600, since qualified dividend is eligible for tax rates as applicable on long term capital gain. Theodoor taxable income is $200,000 so it is coming under 33% tax rates so long term capital gain applicable will be 15%

Tax on LTCG = 16600 x 15% = $2490

Investment income tax of 3.8% is charged on smaller of MAGI over Taxable income or Net Investment income.

Here Investment income includes interest , dividends and capital gains = 21500(4700+5400+11200+200)

MAGI over taxable income = 212000-200000 = 12000

Smaller is 12000 so Investment income tax = 12000 x 3.8% = $456