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 $44,000 on this stock as an ordinary loss rather than the typical capital loss. Daniel figures that he has a loss of $52,800 on each stock. If Daniel’s marginal tax rate is 35 percent and he has $105,600 of other capital gains (taxed at 15 percent), what is the tax savings from the special tax treatment?

Answer 1

Answer:

Tax saving will be = $8800

Explanation

                          Special stock                                Normal stock

Loss                      -52,800                                  -52,800

ordinary loss            15400   [44000*.35]            NA

Capital loss         1320     [(52800-44000)*.15]       7920   [52800*.15]

Total savings         15400+ 1320= 16720                  7920

Tax saving will be = 16720 - 7920 = $8800