Kirby is in the 12% tax bracket and had the following capital asset transactions during 2018:
Kirby's tax consequences from these gains are as follows:
A) (5% × $10,000) + (12% × $13,000).
B) (12% × $13,000) + (28% × $11,000).
C) (0% × $10,000) + (12% × $13,000).
D) (12% × $23,000).
E) None of these.

Question

Kirby is in the 12% tax bracket and had the following capital asset transactions during 2018: 
Kirby's tax consequences from these gains are as follows:
A) (5% × $10,000) + (12% × $13,000). 
B) (12% × $13,000) + (28% × $11,000). 
C) (0% × $10,000) + (12% × $13,000). 
D) (12% × $23,000). 
E) None of these.

Quizplus · Accepted Answer

Kirby's tax rate is in the 12% tax bracket, so the gains are taxed at a rate of 12%. The long-term gain from the sale of the stock is $13,000, which is subject to the long-term capital gains rate of 0% since Kirby is in the 12% tax bracket. The short-term gain from the sale of the mutual fund is $10,000, which is taxed at the short-term capital gains rate of Kirby's ordinary tax rate, which is also 12%. Therefore, the total tax consequence is (0% × $10,000) + (12% × $13,000) = $1,560. Option C is the best choice.

Kirby Is in the 12% Tax Bracket and Had the Following