Answered: Daniel is considering selling two…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Daniel is considering selling two stocks that have not fared well over recent years. A friend recently informed Daniel that one of his stocks has a special designation, which allows him to treat a loss up to $54,000 on this stock as an ordinary loss rather than the typical capital loss. Daniel figures that he has a loss of $64,800 on each stock. If Daniel’s marginal tax rate is 35 percent and he has $129,600 of other capital gains (taxed at 15 percent)

Required: What is the tax savings from the special tax treatment?

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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