Question

Sargon is single and has taxable income of $175,000 without considering the sale of a capital asset (land held for investment) in October of 2017 for $30,000. That asset was purchased five years earlier and has a tax basis of $10,000. The tax liability applicable to only the capital gain (without consideration of the additional Medicare tax) is

A) $1,000.

B) $3,000.

C) $5,600.

D) $7,000.

Answer 1

Although this question is incomplete because tax rate is not given to calculate the tax liability due to capital gains. Therefore, exact answer can't be determined but I will explain the steps below:

Capital gains tax will be on the land whose tax basis or cost basis is given $10,000 and the market price at which it was sold after 5 years is given to be $30,000.

Assuming Capital gains tax rate=10%

Tax liability only to capital gains= (30000-10000)*capital gains tax= 20000*.01=$2000