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 resulted in a long-term capital gain of $10,000, but since Kirby held the asset for more than one year, the maximum tax rate on this gain is 0%. Therefore, Kirby's tax liability from this transaction is 0% x $10,000 = $0.

The second transaction also resulted in a long-term capital gain, but since it was sold at a higher price than it was purchased, Kirby must pay taxes on the gain. The gain is calculated as follows:

Selling price - cost basis = capital gain 
$24,000 - $11,000 = $13,000

Since Kirby is in the 15% tax bracket, the tax on this gain is 15% x $13,000 = $1,950.

Therefore, Kirby's total tax liability from these two transactions is $0 + $1,950 = $1,950.

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