ExpertHard1 markMultiple Choice
CPA · Question 72 · Area IV: Individual Taxation
A taxpayer sold stock for $10,000 that was purchased two years ago for $6,000. The taxpayer is in the 37% ordinary income tax bracket and the 20% long-term capital gains bracket. What is the tax liability on this sale?
A taxpayer sold stock for $10,000 that was purchased two years ago for $6,000. The taxpayer is in the 37% ordinary income tax bracket and the 20% long-term capital gains bracket. What is the tax liability on this sale?
Answer options:
A.
$1,480
B.
$800
C.
$600
D.
$1,200
How to approach this question
1. Calculate Gain: $10k - $6k = $4k. 2. Determine Character: Held > 1 year = Long Term. 3. Determine Rate: High income (37% bracket) implies 20% LTCG rate (max rate). 4. Calc Tax: $4k * 20% = $800.
Full Answer
B.$800✓ Correct
B
The gain is $4,000 ($10,000 - $6,000). Since it was held > 1 year, it is Long-Term Capital Gain. For taxpayers in the highest ordinary bracket (37%), the LTCG rate is 20%. $4,000 * 20% = $800.
Common mistakes
Applying the ordinary income rate (37%) to a long-term capital gain.
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