Question

Jack and June are retired and receive? $10,000 of social security benefits and taxable pensions totaling?...

Jack and June are retired and receive? $10,000 of social security benefits and taxable pensions totaling? $25,000. They have been offered? $20,000 for an automobile that they restored after they retired. They did most of the restoration work themselves and the sale will result in a gain of? $12,000. What tax issues should Jack and June? consider? Choose all that apply.

A.

The gain from the sale of the automobile will be? tax-exempt because it is considered hobby income.

B.

If they accept the offer for the automobile their social security benefits will not be taxable because social security benefits are always excluded from taxable income.

C.

Jack and June do not have any taxable income since they are retired.

D.

The gain from the sale of the automobile will be taxable. Because Jack and June are? retired, they will not be eligible to treat this gain as a capital gain.

E.

If they accept the offer for the automobile then a portion of their social security benefits will be taxable because their provisional income would be greater than the base amount of? $32,000 (married filing? jointly).

F.

The gain from the sale of the automobile will be taxable.? Ordinarily, gains on the sale of investment and personal use assets are capital gains. The fact that the gain is attributable to the work they did themselves could cause the gain to be treated as ordinary income subject to? self-employment tax.? However, if this is the only automobile they have restored they probably are not considered to be in the automobile restoration business.

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Answer #1

According to section2(14) a capital asset means:

a) property of any kind held by any assessee whether or not connected with his business or profession.

b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with SEBI regulations.

However it does not includes Personal Effects

Personal effects that is to say movable property held for the personal use by the assessee or any member of his family dependent on him

Assuming that they use automobile for the personal use and thereafter sold it. So Capital Gain is exempt from income tax.

A.

The gain from the sale of the automobile will be? tax-exempt because it is considered hobby income is correct .

Since personal effects are not eligible for capital gain tax

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