Brandon, an individual, began business four years ago and has sold 1231 assets with $5,500 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:

Asset	Original Cost	Accumulated Depreciation	Gain/Loss
Machinery	$ 31,000	$ 8,000	$ 10,500
Land	50,000	0	25,000
Building	110,000	30,000	(15,000)

Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?

Reference to use:

Tax Rates for Net Capital Gains and Qualified Dividends

Rate*	Taxable Income
	Married Filing Jointly	Married Filing Separately	Single	Head of Household	Trusts and Estates
0%	$0 - $80,800	$0 - $40,400	$0 - $40,400	$0 - $54,100	$0 - $2,700
15%	$80,801 - $501,600	$40,401 - $250,800	$40,401 - $445,850	$54,101 - $473,750	$2,701 - $13,250
20%	$501,601+	$250,801+	$445,851+	$473,751+	$13,251+

*This rate applies to the net capital gains and qualified dividends that fall within the range of taxable income specified in the table (net capital gains and qualified dividends are included in taxable income last for this purpose).

Answers:

Multiple Choice

• $20,500 ordinary income and $6,560 tax liability

• $20,500 1231 gain and $3,075 tax liability

• $7,000 1231 gain, $13,500 ordinary income, and $5,370 tax liability

• $13,500 1231 gain, $7,000 ordinary income, and $4,265 tax liability

• None of the choices are correct.