In July 2016,Harriet sells a stamp from her stamp collection at a gain of $500.Harriet purchased the stamp in 2009.If Harriet is in the 33% marginal tax rate bracket and has no other capital asset sales in 2016,what is her tax on the sale of the stamp?

Question

Quizplus · Accepted Answer

To calculate the tax on a capital asset sale, we need to first determine the gain. In this case, Harriet's gain on the stamp sale is $500. Since she purchased the stamp in 2009, we can assume that she held it for more than one year, making it a long-term capital asset. Long-term capital gains are taxed at a lower rate than ordinary income, but the rate depends on Harriet's income bracket. Since she is in the 33% marginal tax rate bracket, her long-term capital gains tax rate is 20%.

To calculate the tax on the stamp sale, we need to multiply the gain by the tax rate: $500 * 20% = $100. However, we also need to consider the impact of taxes on the gain itself. Since Harriet's gain is $500, she will owe taxes on 33% of that amount, or $165. Therefore, her after-tax gain on the stamp sale is $335.

To determine the actual tax owed, we subtract the after-tax gain from the total gain and then multiply that amount by the tax rate: ($500 - $335) * 20% = $33. Since this is less than $100, we know that the answer must be between $100 and $140. The only option in that range is D, $140, so that is the best choice.

In July 2016,Harriet Sells a Stamp from Her Stamp Collection