Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she sells the following long-term assets used in her business:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$230,000	$200,000	$52,000
Equipment	80,000	148,000	23,000

Lily's taxable income before these transactions is $160,500.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Answer 1

solution:

Long-term capital gain on sale of building = $230,000 - ($200,000-52,000) = $82,000

Long-term capital loss on sale of building = $80,000 - ($148,000-23,000) = $(45,000)

Thus, net long-term capital gain on sale of assets = $82k- 45k = $37,000

so, Lily's taxable income = $160,500 + 37,000 = $197,500

and tax liability for the year :

Tax liability	Amount	Computation
Tax on long-term capital gain	$5,550	$37,000*15%
Tax on ordinary income	$33,049.5	$32,089.50 + ($160,500-157,500)*32%
Tax liability for the year	$38,599.5

here is the tax rate schedule: