In 2019,Thomas,a single taxpayer who has a marginal tax rate of 10%,sells land that is Sec.1231 property at a gain of $4,000.This is the first time Thomas has ever sold a Sec.1231 asset.If he has no other 1231 transactions or capital asset transactions,Thomas will pay no tax on the $4,000 gain.

Question

Quizplus · Accepted Answer

If Thomas has no other 1231 transactions or capital asset transactions, he will qualify for a special tax treatment called 1231 netting. Under this treatment, his gain of $4,000 will be offset by any losses he may have had from the sale of Sec. 1231 property in the same tax year. Since this is his first time selling a Sec. 1231 asset, he does not have any losses to offset the gain, therefore the entire gain will be treated as long-term capital gain and taxed at a lower rate. Since his marginal tax rate is 10%, which is lower than the long-term capital gains tax rate, he will not owe any tax on the $4,000 gain.

In 2019,Thomas,a Single Taxpayer Who Has a Marginal Tax Rate