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?

 

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