Question

Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $14,250 §1231 loss on the sale. The second is land that will generate a $10,400 §1231 gain on the sale. Aruna’s ordinary marginal tax rate is 32 percent. (Input all amounts as positive values.) a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna’s tax liability?

Answer 1

Aruna’s tax liability is $1232.

Explanation:

Given:

Cost of machinery= $14,250

Cost of land= $10,400

Loss on selling machinery= $1231

Gain on selling land= $1231

Character Amount  Rate  Tax

$1231 loss 14,250  32%  4560

$1231 gain 10,400  32%  3328

Tax                                    1232

Aruna’s tax liability is $1232.