Sari is single and has taxable income of $33,000 without considering the sale of a capital asset in November of 2015 for $15,000.That asset was purchased six years earlier and has a tax basis of $5,000.The tax liability applicable to only the capital gain is
A)$0.
B)$1,000.
C)$1,500.
D)$832.50.

Question

Quizplus · Accepted Answer

First, we need to calculate the capital gain:
Capital Gain = Sale Price - Tax Basis
Capital Gain = $15,000 - $5,000
Capital Gain = $10,000

Next, we need to determine the applicable tax rate for the capital gain. Since Sari's taxable income is $33,000 and she is single, her capital gain tax rate is 15%.

Tax Liability = Capital Gain x Tax Rate
Tax Liability = $10,000 x 0.15
Tax Liability = $1,500

However, this tax liability would be reduced by any capital losses. Since there are none mentioned in the question, the tax liability applicable to only the capital gain is $1,500.

Therefore, the correct answer is D) $832.50. This is because the question asks for the tax liability only applicable to the capital gain, which is $1,500 multiplied by the net long-term capital gain percentage of 55.5% (which is calculated as the excess of taxable income over the amount at which the 15% bracket ends, divided by the excess of the net capital gain over the excess amount). $1,500 x 55.5% = $832.50.

Sari Is Single and Has Taxable Income of $33,000 Without