Question

During the year, Inez, a single individual, recorded the following transactions involving capital assets.

Gain on the sale of unimproved land (held as an investment for 3 years)	$3,000
Loss on the sale of a camper (purchased 2 years ago and used for family vacations)	(5,000)
Gain on the sale of ADM stock (purchased 9 months ago as an investment)	4,000
Gain on the sale of a fishing boat and trailer (acquired 18 months ago at an auction and used for recreational purposes)	1,000

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 $______________.

a. If Inez is in the 32% Federal income tax bracket, how much tax results?
$_______________

b. What if Inez is in the 12% bracket, with $35,000 taxable income?
$________________

Answer 1

Gain on the sale of unimproved land is a long term capital gain.

Loss on the sale of camper is not allowed as a deduction or it is not deductible.

Gain on the sale of ADM stock is a short term capital gain

Gain on the sale of fishing boat & trailer is a long term capital gain.

Overall Inez has short term capital gain of $4000 and long term capital gain of $4000

(a) If Inez is in the 32% tax bracket:

Tax liability = $4000 * 32% + $4000 *15%

= $1280 + $600

=$1880

(b) If Inez is in the 12% bracket, with $35000 taxable income

Tax liability will be computed as per below:

Short term capital gain of $4000 @12% = $480

Long term capital gain of $4000 @0% = $0

Out of $35000, first $952.50 = $952.5

Remaining ($35000 -$9525) @12% = $3057

Total tax = $4489.5