Perry is in the 33% tax bracket.During 2017,he had the following capital asset transactions:
Perry's tax consequences from these gains are as follows:

A)(15% × $30,000) + (33% × $4,000).
B)(15% × $10,000) + (28% × $30,000) + (33% × $4,000).
C)(0% × $10,000) + (28% × $30,000) + (33% × $4,000).
D)(15% × $40,000) + (33% × $4,000).
E)None of these.

Question

Perry is in the 33% tax bracket.During 2017,he had the following capital asset transactions:
Perry's tax consequences from these gains are as follows:

A)(15% × $30,000) + (33% × $4,000). 
B)(15% × $10,000) + (28% × $30,000) + (33% × $4,000). 
C)(0% × $10,000) + (28% × $30,000) + (33% × $4,000). 
D)(15% × $40,000) + (33% × $4,000). 
E)None of these.

Quizplus · Accepted Answer

To determine the tax consequences for Perry's capital asset transactions, we need to identify the gains and losses and the applicable tax rates.

1. Sale of stock: Perry sold his stock for a gain of $10,000. As a capital asset held for more than one year, this gain is subject to long-term capital gain tax rates. Since Perry is in the 33% tax bracket, his long-term capital gains tax rate is 20%. Therefore, the tax consequence of this transaction is (20% × $10,000) = $2,000.

2. Sale of rental property: Perry sold his rental property for a gain of $30,000. As a capital asset held for more than one year, this gain is subject to long-term capital gain tax rates. Since Perry is in the 33% tax bracket, his long-term capital gains tax rate is 20%. Therefore, the tax consequence of this transaction is (20% × $30,000) = $6,000.

3. Sale of collectibles: Perry sold his collectibles for a gain of $4,000. Collectibles are subject to a special capital gains tax rate of 28%. Therefore, the tax consequence of this transaction is (28% × $4,000) = $1,120.

Adding up the tax consequences of all three transactions, we get:

$2,000 (stock) + $6,000 (rental property) + $1,120 (collectibles) = $9,120

Therefore, the best choice is B, which correctly identifies the applicable tax rates and calculates the total tax consequence of Perry's transactions.

Perry Is in the 33% Tax Bracket