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

Tax saving will be = $8800

Step-by-step 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