Kirby is in the 15% tax bracket and had the following capital asset transactions during 2012: Kirby's tax consequences from these gains are as follows:
A)(5% ´ $10,000) + (15% ´ $13,000).
B)(15% ´ $13,000) + (28% ´ $11,000).
C)(0% ´ $10,000) + (15% ´ $13,000).
D)(15% ´ $23,000).
E)None of the above.

Question

Kirby is in the 15% tax bracket and had the following capital asset transactions during 2012:  Kirby's tax consequences from these gains are as follows:
A)(5% ´ $10,000) + (15% ´ $13,000). 
B)(15% ´ $13,000) + (28% ´ $11,000). 
C)(0% ´ $10,000) + (15% ´ $13,000). 
D)(15% ´ $23,000). 
E)None of the above.

Quizplus · Accepted Answer

The first transaction is a long-term capital loss of $2,000, which offsets the long-term capital gain of $12,000 from the second transaction. Therefore, Kirby's net long-term capital gain is $10,000. Since Kirby is in the 15% tax bracket, the tax on the net long-term capital gain is 15% × $10,000 = $1,500. The third transaction is a short-term capital gain of $13,000, which is taxed at Kirby's ordinary income tax rate of 15%, resulting in a tax of 15% × $13,000 = $1,950. Therefore, Kirby's total tax consequences from these gains are (0% × $2,000) + (15% × $10,000) + (15% × $13,000) = $0 + $1,500 + $1,950 = $3,450.  The correct answer is C, (0% ´ $2,000) + (15% ´ $10,000) + (15% ´ $13,000).

Kirby Is in the 15% Tax Bracket and Had the Following