Brandon, an Individual, Began Business Four Years Ago and Has

question 29

Multiple Choice

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 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:
Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability?
$$\begin{array} { | l | r | r | r | } \hline \text { Asset } & \begin{array} { r } \text { Original } \\\text { Cost }\end{array} & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\hline \text { Land } & 40,000 & 0 & 20,000 \\\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \\\hline\end{array}$$

• A) $25,000 ordinary income, $8,750 tax liability.
• B) $25,000 §1231 gain and $3,750 tax liability.
• C) $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability.
• D)$12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability.
• E)None of these

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