Tabari has income from employment of $25,000 during the year. As well, he has a capital gain on Listed Personal Property of $8,000 on the sale of a stamp collection, and a capital gain from the sale of some shares of $6,000. Last year, he had a capital loss on Listed Personal Property of $10,000 that he was unable to use and carried forward to the current year. What is his net income for tax purposes for the year, assuming that this accounts for all of his income for the year?

Question

Quizplus · Accepted Answer

Tabari's net income for tax purposes is calculated by adding his employment income to his net capital gains, after accounting for the capital loss carryover. His employment income is $25,000. The capital gain on Listed Personal Property is $8,000, but only half of this is taxable ($4,000), and the capital gain from the sale of shares is $6,000, with half of this also being taxable ($3,000). The capital loss from last year of $10,000 can be carried forward and used to offset the capital gains of this year. However, since the loss is on Listed Personal Property, it can only offset gains on the same type of property. Therefore, the $10,000 loss fully offsets the $8,000 gain on the stamp collection, leaving $2,000 of the loss unused. The taxable portion of the capital gains from the shares ($3,000) is not affected by the Listed Personal Property loss and is added to his income. Thus, his net income for tax purposes is $25,000 (employment income) + $3,000 (taxable portion of the gain from shares) = $28,000.

Tabari Has Income from Employment of $25,000 During the Year