Tom Johnson,whose marginal tax rate on ordinary income is 35%,sold four investment assets resulting in the following capital gains and losses. How much of Tom's net capital gain is taxed at 15%?

Question

Tom Johnson,whose marginal tax rate on ordinary income is 35%,sold four investment assets resulting in the following capital gains and losses.   How much of Tom's net capital gain is taxed at 15%?

Quizplus · Accepted Answer

First, we need to calculate Tom's net capital gain by subtracting the total capital losses from the total capital gains:
($6,000 + $12,000 + $5,000) - ($7,500) = $15,500

Next, we need to determine how much of Tom's net capital gain is taxed at 15%. To do this, we need to look at the breakpoints in the tax code for the capital gains tax rate:

- For taxpayers in the 10% or 15% tax bracket, the capital gains tax rate is 0%.
- For taxpayers in the 25%, 28%, 33%, or 35% tax bracket, the capital gains tax rate is 15%.
- For taxpayers in the highest tax bracket (currently 37%), the capital gains tax rate is 20%.

Since Tom's marginal tax rate is 35%, we know that his net capital gain will be subject to the 15% capital gains tax rate. Therefore, we can multiply Tom's net capital gain by 15% to determine how much of it will be taxed at that rate:

$15,500 x 0.15 = $2,325

Therefore, the correct answer is C) $2,700.

Tom Johnson,whose Marginal Tax Rate on Ordinary Income Is 35%,sold