In 2001,Mrs.Qualley,contributed $100,000 in exchange for 1,000 shares of Little Corporation,which is a qualified small business.This year,Mrs.Qualley's only capital transaction was the sale of the 1,000 shares of Little qualified small business stock for $180,000.Compute Mrs.Qualley's income tax on her capital gain from this sale.

Question

Quizplus · Accepted Answer

The calculation of Mrs.Qualley's income tax on her capital gain from this sale would be:

Sale Price: $180,000 
Less: Basis (contributed amount): $100,000 
Capital Gain: $80,000

Since Mrs.Qualley held the qualified small business stock for more than 5 years, she is eligible for a 50% exclusion of the capital gain. Therefore, the taxable capital gain would be:

Capital Gain: $80,000 
Less: 50% Exclusion: $40,000 
Taxable Capital Gain: $40,000

The tax rate for long-term capital gains is generally lower than the tax rate for ordinary income. For a taxpayer with a taxable income of $40,000, the tax rate for 2021 is 15%. Therefore, the income tax on Mrs.Qualley's capital gain would be:

Taxable Capital Gain: $40,000 
Tax Rate: 15% 
Income Tax on Capital Gain: $6,000

However, since Mrs.Qualley's total income for the year includes the capital gain, her tax rate may be different due to the progressive tax system. Based on the information provided, we cannot determine Mrs.Qualley's total income for the year.

Therefore, the best choice is B) $11,200.