Question

Jen bought 100 shares of ABC stock at $15 a share on July 14, 2017. On August 7, 2018, she noticed that the stock had increased in value to $20 a share and decided to sell her shares. Jen's marginal tax rate is 22%. How is the revenue from the sale treated on her 2018 income tax return?

A) Her AGI will increase by $2,000, and this $2,000 will be taxed at her regular marginal rate of 22%.

B) Her AGI will increase by $500, and this $500 will be taxed at her regular marginal tax rate of 22%.

C) Her AGI will increase by $2,000, but this $2,000 will be taxed at a capital gain rate of 20%.

D) Her AGI will increase by $500, but this $500 will be taxed at a capital gain rate of 15%.

2) Which of the following is classified as depreciable, business-use property?

A) Property placed in service and disposed of in the same year.

B) A vehicle used by the taxpayer for both personal and business purposes.

C) Inventory.

D) A copyright.

Answer 1

Answer (1):

Correct answer is:

D) Her AGI will increase by $500, but this $500 will be taxed at a capital gain rate of 15%.

Explanation:

The 100 shares of ABC stock were purchased on July 14, 2017 and sold on August 7, 2018. Since the share were held from more than one year, the gain is long term capital gain.

LT capital gain = 100 * ($20 - $15) = $500.

When marginal tax rate is 22%, LT capital gain tax rate is 15%.

Hence:

Her AGI will increase by $500 and this $500 will be taxed at a capital gain rate of 15%.

Option D is correct and other options A, B and C are incorrect.

Answer (2):

Correct answer is:

B) A vehicle used by the taxpayer for both personal and business purposes.

Explanation:

Property placed in service and disposed of in the same year does not meet requirement of depreciable property.

Inventory is not a fixed asset.

A copyright is intangible is not depreciated but it is amortized.

A vehicle used by the taxpayer for both personal and business purposes is depreciated for the business or investment use portion.

Hence option B is correct and other options A, C and D are incorrect.