Leslie buys a painting from a collector for resale in her gallery.She purchased the painting for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?
A)$4,000 gain subject to 28% tax rate.
B)$4,000 Section 1245 gain.
C)$4,000 ordinary income.
D)$5,000 ordinary gain and $4,000 Section 1231 gain.

Question

Quizplus · Accepted Answer

Since Leslie bought the painting for resale in her gallery, this transaction falls under ordinary income rather than capital gains. The gain on the sale is the difference between the selling price ($9,000) and the purchase price ($5,000), which is $4,000. As it is ordinary income, it is subject to ordinary income tax rates. Therefore, choice C is the correct answer.

Leslie Buys a Painting from a Collector for Resale in Her