During the current year,Kayla recognizes a $40,000 Section 1231 gain on sale of land and a $22,000 Section 1231 loss on the sale of land.Prior to this,Kayla's only Section 1231 item was a $10,000 loss six years ago.Kayla is in the 28% marginal tax bracket.The amount of tax resulting from these transactions is
A)$2,700.
B)$3,600.
C)$4,000.
D)$5,040.

Question

Quizplus · Accepted Answer

Kayla's net Section 1231 gain is $18,000 ($40,000 gain - $22,000 loss). Since she had a Section 1231 loss six years ago, the gain is treated as ordinary income under the recapture rule. The tax on $18,000 at a 28% rate is $5,040. However, the question asks for the tax resulting from these transactions, which is the tax on the net gain after considering the recapture, leading to $2,700 ($18,000 - $10,000 recaptured = $8,000 taxed at 28%).

During the Current Year,Kayla Recognizes a $40,000 Section 1231 Gain