McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 24

[LO 1, 2, 3, 4] During 2011, your clients, Mr.and Mrs.Howell, owned the following investment assets: ?*No commissions are charged when no load mutual funds are bought and sold.Because of the downturn in the stock market, Mr.and Mrs.Howell decided to sell most of their stocks and mutual fund in 2011 and to reinvest in municipal bonds.The following investment assets were sold in 2011: *No commissions are charged when no load mutual funds are bought and sold.The Howells' broker issued them a Form 1099 showing the sales proceeds net of the commissions paid.For example, the IBM sales proceeds were reported as $13,600 on the Form 1099 they received.In addition to the sales reflected in the table above, the Howell's provided you with the following additional information concerning 2011:
The Howells received a Form 1099 from the Vanguard mutual fund reporting a $900 long-term capital gain distribution.This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/11.In 2006, Mrs.Howell loaned $6,000 to a friend who was starting a new multilevel marketing company called LD3.The friend declared bankruptcy in 2011, and Mrs.Howell has been notified that she will not be receiving any repayment of the loan.The Howells have a $2,300 short-term capital loss carryover and a $4,800 long-term capital loss carryover from prior years.The Howells did not instruct their broker to sell any particular lot of IBM stock.The Howells earned $3,000 in municipal bond interest, $3,000 in interest from corporate bonds, and $4,000 in qualified dividends.The Howells paid $5,000 in investment interest expense during the year ($1,000 is attributable to their municipal bond investments).The Howells paid $2,000 for investment advice during the year but did not have any additional miscellaneous itemized deductions.Assume the Howells have $130,000 of wage income during the year.a.?Go to the IRS web site (www.RS.ov) and download the most current version of Schedule D.Use page 1 of Schedule D to compute net long-term and short-term capital gains.Then, compute the Howells' tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don't make any special tax elections, and their itemized deductions total $25,000.b.?Are there any tax planning recommendations related to the stock sales that you should have shared with the Howells before their decision to sell?
c.?Assume the Howells' short-term capital loss carryover from prior years is $82,300 rather than $2,300 as indicated above.If this is the case, how much short-term and long-term capital loss carryover remains to be carried beyond 2011 to future tax years?