Kirby is in the 15% tax bracket and had the following capital asset transactions during 2010: Kirby's tax consequences from these gains are as follows:
A)(5% * $10,000)+ (15% * $13,000).
B)(0% * $10,000)+ (15% * $13,000).
C)(15% * $13,000)+ (28% * $11,000).
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 2010:  Kirby's tax consequences from these gains are as follows:
A)(5% * $10,000)+ (15% * $13,000). 
B)(0% * $10,000)+ (15% * $13,000). 
C)(15% * $13,000)+ (28% * $11,000). 
D)(15% * $23,000). 
E)None of the above.

Quizplus · Accepted Answer

The capital gain from the sale of the stock ($10,000) is within the 0% tax bracket, as Kirby is in the 15% tax bracket and the capital gain is less than $36,900 for single filers. The capital gain from the sale of the land ($13,000) is within Kirby's tax bracket, so it is taxed at 15%. Therefore, the total tax consequences are (0% * $10,000) + (15% * $13,000) = $1,950. Option A is incorrect because it applies the 5% tax rate to the entire capital gain, which is incorrect. Option C is incorrect because it applies the 28% tax rate to the entire capital gain, which is also incorrect. Option D is incorrect because it does not take into account the different tax rates for the two transactions.

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