A complex trust has taxable income of $29,900 in 2013. The $29,900 includes $5,000 of long-term capital gains and $25,000 of taxable interest income, reduced by the $100 personal exemption. The trust makes no distributions during the year.

ESTATES AND TRUSTS

If taxable income is:

The tax is:

Not over $2,450 . . . . . . . . . . . . . . . . . . . . .

15% of taxable income.

Over $2,450 but not over $5,700 . . . . . . . .

$367.50, plus 25% of the excess over $2,450.

Over $5,700 but not over $8,750 . . . . . . . .

$1,180.00, plus 28% of the excess over $5,700.

Over $8,750 but not over $11,950 . . . . . . .

$2,034.00, plus 33% of the excess over $8,750.

Over $11,950 . . . . . . . . . . . . . . . . . . . . . . .

$3,090.00, plus 39.6% of the excess over $11,950.

Single

If taxable income is:

The tax is:

Not over $8,925 . . . . . . . . . . . . . . . . . . .

10% of taxable income.

Over $8,925 but not over $36,250 . . . . .

$892.50 + 15% of the excess over $8,925.

Over $36,250 but not over $87,850 . . . .

$4,991.25 + 25% of the excess over $36,250.

Over $87,850 but not over $183,250 . . .

$17,891.25 + 28% of the excess over $87,850.

Over $183,250 but not over $398,350 . .

$44,603.25 + 33% of the excess over $183,250.

Over $398,350 but not over $400,000 . .

$115,586.25 + 35% of the excess over $398,350.

Over $400,000 . . . . . . . . . . . . . . . . . . . .

$116,163.75 + 39.6% of the excess over $400,000.

Capital Gains and Dividends

Capital gains and losses are assigned to baskets. Five possible tax rates will apply to most capital gains and losses:

Ordinary income tax rates (up to 39.6% in 2013) for gains on assets held one year or less.

28% rate on collectibles gains and includible Sec. 1202 gains

20% rate on gains on assets held for more than one year and qualified dividends (for taxpayers whose regular tax bracket is 39.6%)

15% rate on gains on assets held for more than one year and qualified dividends (for taxpayers whose regular tax bracket is higher than 15% and less than 39.6%)

00% rate on gains on assets held for more than one year and qualified dividends (for taxpayers whose regular tax bracket is not higher than 15%)

Note: The net investment income of higher income taxpayers (modified AGI greater than $200,000 for single and $250,000 for married filing jointly) also may be subject to an additional tax of 3.8%. Net investment income includes dividends and capital gains, along with other types of investment income.

Estates and trusts potentially owe the 3.8% incremental tax on net investment income, but the inception point for this tax is at a much lower amount than it is for individuals. The tax is levied on the lesser of (1) the entity's undistributed net investment income or (2) its modified adjusted gross income (MAGI) in excess of the amount at which the top tax rate of 39.6% begins $11,950 in 2013). MAGI is AGI reduced by the personal exemption, expenses that would not have been incurred if the property were not held by an estate or trust, and the distribution deduction. Net investment income includes, among other things, interest, dividends, annuities, royalties, rents, and net gains from certain property dispositions, all reduced by allocable deductions.

a.What is the trust's total tax liability?

b.Compare this tax to the amount of tax an unmarried individual filing single would pay on the same amount of rental and interest income (with no other income). Assume the individual claims the standard deduction.

What is the tax an individual filing a joint return would pay?