Question

Problem 3-48 (LO. 8) During 2020, Inez (a single taxpayer) had the following transactions involving capital assets: $6,000 (5,000) Gain on the sale of unimproved land (held as an investment for 3 years) Loss on the sale of a camper (purchased 2 years ago and used for family vacations) Gain on the sale of ADM stock (purchased 9 months ago as an investment) Gain on the sale of a fishing boat and trailer (acquired 18 months ago at an auction and used for recreational purposes) 2,450 1,000 a. Indicate the tax treatment for each item. Gain on the sale of unimproved land Loss on the sale of a camper Gain on the sale of ADM stock Gain on the sale of a fishing boat and trailer Overall, Inez has of $ and of $ b. If Inez has taxable income (including the property transactions) of $188,450, what is the income tax regarding these transactions? Her marginal tax rate is 32%. If Inez has taxable income (including the property transactions) of $32,250, what is the income tax regarding these transactions? Her marginal tax rate is 12%.

Answer 1

Answer:

a) Overall,Inez has a long term capital gain of $ 6,000 and a short term capital gain of $ 2,450.

b(i)	1,834
b(ii)	294

Calculation:

Gain on the sale of unimproved land is a long-term capital gain. So 6,000 is a long-term capital gain with no long term losses to net against.

Loss on the sale of a camper in nondeductable.

Gain on the sale of ADM stock is short term capital gain. So 2,450 is a short-term capital gain with no short term losses to net against

Gain on the sale of a fishing boat and trailer is a long-term capital gain. So 1,000 is a long-term capital gain with no long term losses to net against.

So long-term capital gain = 6000 + 1000 = 7000

short-term capital gain = 2,450

b(i) Here, Inez is in the 32% tax bracket, so her regular tax rate of 32% exceeds the alternative tax rate of 15%.

Hence, $7,000 long-term capital gain is taxed at 15%, and her short-term capital gain is taxed at 32%.

($7,000 x 15%) + ($2,450 x 32%) = 1050 + 784 =1,834

The tax is $1,834

b(ii) Here, Inez is in the 12% tax bracket, her regular tax rate of 12% exceeds the alternative tax rate of 0%.

So, her $7000 long-term capital gain is taxed at 0%,

her 2450 short-term capital gain is taxed at 12%.

[(7000 x 0%) + ($2450 x 12%)] = 0 + 294 = 294

The tax is $294