Brandon, an individual, began business four years ago and has sold §1231 assets
ID: 2600790 • Letter: B
Question
Brandon, an individual, began business four years ago and has sold §1231 assets with $5,550 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets Accumula Asset Machinery Land Building Original Cost Depreciation 8,100 0 31,000 $ 31100 51,000 112,000 Gain/Loss 10,550 25,500 (16,000) Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability? O $13,650 §1231 gain, $6,400 ordinary income, and $4,288 tax liability. o $20,050 §1231 gain and $3,008 tax liability. O None of the choices are correct $20,050 ordinary income, $7,018 tax liability. O $6,400 $1231 gain, $13.650 ordinary income, and $5,738 tax liability.Explanation / Answer
Net gain on sale of assets = 10550+25500-16000 = 20050
Tax liability = 20050*35% = 7018
Answer is $20050 ordinary income, $7018 tax liability.