Yelenis,whose tax rate is 28%,sells one Sec.1231 asset this year,resulting in a $50,000 gain.Included in the $50,000 Sec.1231 gain is $30,000 of unrecaptured Sec.1250 gain.A review of Yelenis tax files for the past five years indicates one prior Sec.1231 sale which resulted in a $14,000 loss.The gain will be taxed as

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Yelenis has a net Sec.1231 gain of $16,000 ($50,000 gain - $30,000 unrecaptured Sec.1250 gain - $14,000 prior Sec.1231 loss). Since this is a net Sec.1231 gain, it is taxed at the lower capital gains rate, which for Yelenis is 15%. However, 5% of the $30,000 unrecaptured Sec.1250 gain is taxed at Yelenis's ordinary income tax rate of 28%, resulting in an additional tax of $1,500 ($30,000 x 0.05 x 0.28). Therefore, the total tax on the Sec.1231 gain is $3,300 ($15,000 x 0.15 + $1,500).

Choice B is the correct answer because it correctly applies the rules for taxing Sec.1231 gains and unrecaptured Sec.1250 gain.

Yelenis,whose Tax Rate Is 28%,sells One Sec