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

Tom's capital gains and losses are: 
- $80,000 long-term capital gain 
- $52,000 short-term capital loss 
- $28,000 long-term capital loss 
- $8,000 short-term capital gain

His net capital gain is calculated as follows: 
$80,000 (LTCG) - $28,000 (LTCL) + $8,000 (STCG) - $52,000 (STCL) = $8,000

Since Tom's ordinary income tax rate is 35%, his net capital gain is taxed at a lower rate - either 15% or 20%, depending on the type of capital gain. 
In this case, $2,700 of Tom's net capital gain is taxed at 15% because he has $28,000 of long-term capital losses to offset part of his long-term capital gain. The remaining $5,300 ($8,000 - $2,700) is taxed at 20%.

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

Tom Johnson, Whose Marginal Tax Rate on Ordinary Income Is