How to Calculate the Net Effect on Taxes for Capital Transactions?

What is the net effect on Jason's taxes if he is in the 25% tax bracket?

Which of the following best describes the tax treatment for Gonzo regarding the sale of the vacation home?

Answer:

The net effect on Jason's taxes would be a $750 tax reduction.

The correct answer for Gonzo's tax treatment regarding the sale of the vacation home is $75,000 long-term capital gain.

For Jason's capital transactions, we need to calculate the net effect on his taxes. First, we calculate the net short-term capital gain/loss:

Short-term capital gain = $3,000

Short-term capital loss = $5,000

Net short-term capital gain/loss = $3,000 - $5,000 = -$2,000 (a short-term capital loss)

Next, we calculate the net effect on taxes:

Net capital gain/loss = -$2,000 + (-$2,000) = -$4,000 (a net capital loss)

Since Jason has a net capital loss and is in the 25% tax bracket, the tax reduction would be $750.

For Gonzo's tax treatment regarding the sale of the vacation home:

Gonzo's cost basis in the property is $325,000 and selling price is $420,000.

To calculate the gain on the sale of the vacation home: $420,000 - $325,000 = $95,000

Since Gonzo inherited the home and sold it, the gain is treated as a long-term capital gain, resulting in $75,000 long-term capital gain.