Question

Problem 3-50 (c) (LO. 6, 8)

During the year, Isabelle recorded the following transactions involving capital assets.

Indicate the tax treatment for each item:

Transaction		Amount		Tax Treatment
Loss on the sale of land held for investment (purchased 11 months ago)		($8,000)
Gain on the sale of a personal speed boat (purchased seven years ago)		4,500
Gain on the sale of corporate stock (purchased four years ago as an investment)		12,500
Loss on the sale of a personal vehicle (purchased nine months ago)		(3,500)

Overall, Isabelle has of $ and of $.

a. If Isabelle is in the 35% Federal income tax bracket, how much tax results?
$

b. If Isabelle is in the 15% bracket?
$

Answer 1

Indicating the Tax Treatment for Each Item:

Transaction	Amount	Tax Treatment
Loss on Sale of Land Held for Investment (Purchased 11 Months Ago)	($8,000)	Nil
Gain on Sale of a Personal Speed Boat (Purchased Seven Years Ago)	$4,500	20%
Gain on Sale of a Corporate Stock (Purchased Four Years Ago as an Investment)	$12,500	Nil
Loss on Sale of a Personal Vehicle (Puchased Nine Months Ago)	($3,500)	Nil

a) Calculation of the Tax Results with 35% Federal Income Tax Bracket:

Tax = -$8,000 + $4,500 + $12,500 - $3,500

= $5,500 * 35%

= $1,925

Therefore, the Tax is $1,925, with 35% Federal Income Tax Bracket.

b) Calculation of the Tax Results with 15% Federal Income Tax Bracket:

Tax = -$8,000 + $4,500 + $12,500 - $3,500

= $5,500 * 15%

= $825

Therefore, the Tax is $825, with 15% Federal Income Tax Bracket.