Question

Asok's AGI for 2018 is $133,050. Included in this AGI is a $45,000 25% long-term capital gain and a $13,000 0%/15%/20% long-term capital gain. Asok is single and uses the standard deduction. Compute his taxable income, the tax liability, and the tax savings from the alternative tax on net capital gain.

Click here to access the tax rate schedules to use for this problem.

When computing the tax on the gain, calculate each part separately, rounding interim calculations to two decimal places. Then, round your final answer for the tax to the nearest dollar. Hint: The 25% gain is calculated at two different rates.

Asok's taxable income: $121,050
• His regular tax liability: $23,342
• His tax liability using the alternative tax approach: $
• The tax savings from using the alternative tax approach: $

Answer 1

Asoka's taxable income is $123,700 ($133,050 AGI $5,700 standard deduction $3,650 personal exemption)

Tax on $65,700 ordinary taxable income ($123,700 TI  $45,000 25% gain $13,000 0%/15% gain) from single tax rate schedule $12,606

25% tax on $16,700 of 25% gain (regular tax rate is the same as the alternative tax rate until taxable income exceeds $82,400) 4,175

25% tax on $28,300 of remaining 25% gain (alternative tax rate of 25% is lower than the regular tax rate of 28%) 7,075

15% tax on $13,000 0%/15% gain (alternative tax rate of 15% is lower than regular tax rate of 28%) 1,950

Total tax liability using the alternative tax calculation $25,806