Federal Taxation 1

Brandon, an individual, began business four years ago and has sold 1231 assets with $5,300 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	$ 30,600	$ 7,600	$ 10,300
Land	46,000	0	23,000
Building	102,000	26,000	(11,000)

Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use dividends and capital gains tax rates for reference.

Multiple Choice

• $22,300 ordinary income and $7,136 tax liability.

• $22,300 1231 gain and $3,345 tax liability.

• $9,400 1231 gain, $12,900 ordinary income, and $5,538 tax liability.

• $12,900 1231 gain, $9,400 ordinary income, and $4,943 tax liability.

• None of the choices are correct.