Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $14,250 §1231 loss on the sale. The second is land that will generate a $10,400 §1231 gain on the sale. Aruna's ordinary marginal tax rate is 32 percent. (Input all amounts as positive values.) a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax liability?

Question

Cleo

Business

25 April, 08:59

Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $14,250 §1231 loss on the sale. The second is land that will generate a $10,400 §1231 gain on the sale. Aruna's ordinary marginal tax rate is 32 percent. (Input all amounts as positive values.) a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax liability?

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Answers (1)

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Abdiel Pruitt · Answer 1

Aruna's tax liability is $1232.

Explanation:

Given:

Cost of machinery = $14,250

Cost of land = $10,400

Loss on selling machinery = $1231

Gain on selling land = $1231

Character Amount Rate Tax

$1231 loss 14,250 32% 4560

$1231 gain 10,400 32% 3328

Tax 1232

Aruna's tax liability is $1232.