Bob and Anna are in the 35% tax bracket for ordinary income and the 15% bracket for capital gains (ignore the 3.8% additional tax on investment 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 $10,000. The sale of the other would produce a loss of $15,000. For purposes of this problem, ignore personal exemptions, itemized deductions and other phase-outs. They have no other gains or losses this year.
a. How much tax will they save if they sell the block of stock that produces a loss?
b. How much additional tax will they pay if they sell the block of stock that produces a gain?
c. What will be the impact on their taxes if they sell both blocks of stock?