Rich and Betty are in the 37% tax bracket for ordinary income and the 20% bracket for capital gains (ignore the 3.8% additional tax on investme income for higher-income taxpayers.) They have owned several blocks of stock for many years. They are considering the sale of two blocks of stock. The sale of one block would produce a gain of $12,000. The sale of the other would produce a loss of $20,000. For purposes of this problem, ignore any restrictions on deductions or credits based on AGI. They have no other gains or losses this year. Read the requirements. Requirement a. How much tax will they save in the current year if they sell the block of stock that produces a loss? Rich and Betty will save Requirement b. How much additional tax will they pay if they sell the block of stock that produces a gain? Rich and Betty will pay an additional Requirement c. What will be the impact on their taxes if they sell both blocks of stock? Rich and Betty will The capital loss carryover will be

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.