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Mr. Dunn, who has a 32 percent marginal rate on ordinary income and a 15 percent...

Mr. Dunn, who has a 32 percent marginal rate on ordinary income and a 15 percent marginal rate on adjusted net capital gain, recognized a $15,000 capital loss in 2019. Compute the tax savings from this loss assuming that: Use Individual tax rate schedules.

  1. He recognized no capital gain in 2019 and doesn’t expect to recognize capital gain in 2020 through 2023. Mr. Dunn uses a 5 percent discount rate to compute NPV. Use Appendix B. (Round intermediate calculations to the nearest whole dollar amount.)
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Answer #1

Capital loss are to be set off against capital gain. There is no capital gain in current year 2019 and he doesn't expect to recognise capital gain from year 2020-2023. There is a provision which allows a set off of upto $3,000 per year for set off of capital losses in the years in which there are no capital gains. So a deduction of $3,000 will be availed against ordinary income for years 2019 through 2023

Tax savings per year = $3,000 x 32% = $960

Present value of tax savings = $960 + $960 x present value annuity factor for 4 years at 5%

= $960 + $960 x 3.54595

= $4,364

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