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ACCT 330 Chapter 12, Chapter 13 (Part 1), Chapter 13 (Part 2) and Chapter 14 Application Quiz

Terms in this set (33)

Lila Rodgers is a single custodial parent with a 6 year old son. She pays $4,000 per year for part-time child care. Her AGI is $48,000 per year. The standard deduction is her only deduction from income. She can participate in an employer plan that allows her to shelter up to $5,000 of her wages in a tax deductible plan or she can take the Child and Dependent Care Credit.

If she takes the Child and Dependent Care Credit, what will be the amount of her tax savings.
ANSWER: $600

AGI $48,000, falls into the income range on the Tax Return 2441 row 8 table ($43,000 to no limit = .20)

$3,000 maximum per one child (for child care credit)
x .20 rate
-------------
$600 tax savings from child and dependent care credit
Lila Rodgers is a single custodial parent with a 6 year old son. She pays $4,000 per year for part-time child care. Her AGI is $48,000 per year. The standard deduction as head of household is her only deduction from income. She can participate in an employer plan that allows her to shelter up to $5,000 of her wages in a tax deductible plan or she can take the Child and Dependent Care Credit.

If she participates in the employer plan and shelters an amount equal to her child care payments, what will be the amount of her tax savings? (based on 2020 tax rate schedules).

(HINT: You will have to determine her taxable income. Then, you will have to go to the tax table for her appropriate filing status and find out her marginal tax rate to calculate the tax savings from the $5,000 reported wage subtraction.)
ANSWER: $480

Step 1) Calc Taxable Income
Adjusted Gross Income $48,000
- Head of Household Standard Deduction ($18,350)
------------------------
Taxable Income $29,650

Step 2) Find appropriate filing status and marginal tax rate
- use the tax table from Chapter 12 Application Handout (in word document)
- under the head of household filing status, Lila's taxable income of $29,650 falls in the ($14,101 to $53,700) range so use the corresponding marginal rate of 12%

Step 3) Calc Tax Savings from Employer (Plan) Reimbursement
$4,000 per year part-time child care expense
x 12% marginal tax rate
----------------
$480
Larry and Laura Morton have one child. Tina is a 15 year old high school sophomore. Laura's sister, Meg (23 years old), also lives with them and they furnish over half of her support. Meg earns $3,000 working part-time. Larry and Morton's AGI is $170,000.

What are the total amounts of their credits for dependents?
ANSWER: $2,500

Example: Child and Dependent Credits

$2,000 Child Credit for Tina because she is a qualifying child under 17 years old
+ $500 Dependent Credit (new nonrefundable credit for qualifying relatives
------------------------
$2,500
Laura, a US citizen, has worldwide income of $200,000. Of this amount, $50,000 is from foreign sources. Her total US tax on all income is $30,000. She paid a total $8,000 of taxes to foreign governments on the foreign source income.

What is the amount of Laura's foreign tax credit?
ANSWER: $7,500

Step 1)
($30,000 US tax liability / $200,000 worldwide income) = 15%

Step 2)
$50,000 income from foreign sources x 15% = $7,500

Step 3)
- since the actual foreign taxes paid of $8,000 are greater than the amount calculated above of $7,500, the foreign tax credit will be the lesser of the two $7,500
Which of the following individuals would be eligible for at least some amount of the earned income tax credit?


- Alice, a single, non-dependent person (age 26) with no children, who has earned income and Adjusted Gross Income of $13,000.

- Greta, a single, non-dependent person (age 67) with no children, who has earned income and Adjusted Gross Income of $13,000.

- Tom and Marie, a married couple with two children, who have earned income and AGI of $49,000.

- Albert, a single, non-dependent person (age 52) who pays over half of the support for one child who is a full-time college student. Albert's earned income and AGI is $44,000. Included in Albert's AGI is $6,000 of investment income.

- Julie, 23, is a full-time college student who also earns $13,000 per year. She is the custodial parent of a 4 year old daughter. She receives child support from the non-custodial parent who provides more than half of the daughter's support and treats the child as a dependent for purposes of the child credit.
- Alice, a single, non-dependent person (age 26) with no children, who has earned income and Adjusted Gross Income of $13,000.
alice is older than 25 so she does qualify as an individual without children, and her income of $13,000 is below the zero children single filling of $15,820

- Tom and Marie, a married couple with two children, who have earned income and AGI of $49,000.
tom and marie qualify bc their AGI of $49,000 is below the two children married filing jointly of $53,330

- Julie, 23, is a full-time college student who also earns $13,000 per year. She is the custodial parent of a 4 year old daughter. She receives child support from the non-custodial parent who provides more than half of the daughter's support and treats the child as a dependent for purposes of the child credit.
julie qualifies bc for "divorced custodial parent's" can claim the earned income credit if the other parent treats the child as a dependent on his or her return
Jack is a single individual with an AGI of $55,000. He has attended college for over four years previously and earned a degree but is taking additional college courses part-time and has qualified educational expenses of $5,000. What is the amount of his allowable American Opportunity Credit?
ANSWER: 0

- Jack does not qualify for the American Opportunity Credit bc he has already completed the first four years of post-secondary education (earned a degree)
Jack is a single individual with an AGI of $55,000. He has earned a degree in the past but is taking additional college courses part-time and has qualified educational expenses of $5,000. What is the amount of his allowable Lifetime Learning Credit?
ANSWER: $1,000

- Jack's AGI of $55,000 is below the beginning phase out range of $58,000 for the lifetime learning credit, so not percentage of this maximum qualified education expense is lost
- Jack's qualified educational expenses of $5,000 are below the $10,000 maximum for the lifetime learning credit, so the whole $5,000 can be multiplied by 20%

- $5,000 qualified educational expense x 20% = $1,000
Which of the following individuals would have some liability for the underpayment of estimated tax liability?

1) Jack total tax liability on the current year return is $10,000. He owes a payment of $2,000 with the filed return. Last year, Jack's total tax liability was $7,500. Jack's AGI for the current year is $65,000.

2) Marsha's total tax liability on the current year return is $17,000. She owes a payment of $1,500 with the filed return. Last year, Marsha's total tax liability was $18,500. Marsha' AGI for the current year is $109,000.

3) Lisa's total tax liability on the current year return is $30,000. She owes a payment of $4,000 with the filed return. Last year, Marsha's total tax liability was $26,000. Marsha' AGI for the current year is $185,000.

4) Jack total tax liability on the current year return is $5,000. He owes a payment of $900 with the filed return. Last year, Jack's total tax liability was $6,500. Jack's AGI for the current year is $45,000.
4) Lisa's total tax liability on the current year return is $30,000. She owes a payment of $4,000 with the filed return. Last year, Marsha's total tax liability was $26,000. Marsha' AGI for the current year is $185,000.

REASONING:
- Marsha's AGI of $185,000 falls into the range of a higher income taxpayer ($150,000 AGI+) so she must paid in 110% of the amount of last year's liability not 100%
Fred Smith died in 2020 owning existing property and having claims to a number of future payments. Which of the following, if inherited by his beneficiaries, would not be given a basis of the fair market value at the date of death?

- land purchased by Fred for $20,000 but worth $60,000 at the time of his death
- stock purchased by Fred for $10,000 but worth $25,000 at the time of his death
- A payment from a client due to Fred for professional services performed. Fred, a cash basis taxpayer, finished the services and billed them two weeks before his death but the estate did not receive the check until a month and a half after his death.
- All of the above would be stepped up to fair market value at date of death.
- A payment from a client due to Fred for professional services performed. Fred, a cash basis taxpayer, finished the services and billed them two weeks before his death but the estate did not receive the check until a month and a half after his death.
Hank converted his personal truck to business use 2 years ago. He had bought the truck for $30,000 but it was worth $18,000 at the time of conversion. After taking $5,000 of depreciation on the truck, he sold it for $10,000. What is Hank's gain or loss on this sale?


- a $10,000 loss
- a $2,000 gain
- a $3,000 loss
- no gain or loss
ANSWER: a $3,000 loss

REASONING:
- Since Hank's personal truck declined in value from $30,000 to $18,000, their is a gain and loss basis
- When depreciation exists, it must be deducted from both the gain and loss basis

- GAIN BASIS:
($30,000 purchase price of truck - $5,000 depreciation) $25,000 gain
- LOSS BASIS:
($18,000 decline in value at time of conversion - $5,000 depreciation) 13,000 loss
- SALE OF TRUCK:
$10,000 sale - $13,000 loss basis = $3,000 loss

since the sale of $10,000 was not greater than the gain basis of $25,000 must compare to the loss basis
When stock is bought in different lots at different times and for different prices, a LIFO assumption should be used.

True or False
ANSWER: FALSE

FIFO assumption should be used
Jason receives a gift of stock from his grandmother. The grandmother purchased the stock for $10,000 but it was worth $17,000 at the time of the gift.

Which of the following statements correctly describe the basis of the stock to Jason?

- The stock has a basis of $10,000.
- The stock has a basis for gain of $17,000 and a basis for loss of $10,000
- The stock has a basis of $17,000
ANSWER: The stock has a basis of $10,000

REASONING:
- If the gift (gift of stock in this case) has appreciated in value: the donor's basis (purchase price) carries over to the recipient, not the worth at time of gift.
Ted sells land for $100,000. Ted purchased the land 10 years ago for $60,000. Ted sold the land on a 10 year installment note requiring equal annual payments including interest at 7%.

What percentage of each principal payment is treated as gain?
ANSWER: 40%

Step 1) Calc Gross Profit
($100,000 selling price of land - $60,000 purchasing price of land) = $40,000 gross profit

Step 2) Calc Gross Profit Percentage
($40,000 gross profit on land / $100,000 selling price) = 40% of cash principal payment is treated as gain (recognized)
June and Henry Martin, a married couple, purchased property jointly for $200,000 ten years before Henry's death. At the time of Henry's death, the property was worth $360,000.

What is June's basis in the property after Henry's death?
ANSWER: $280,000

Example of: Joint Property Owned by Spouses

Step 1)
($360,000 value of property at time of death / 2)= $180,000 June's share in fair market value of the property

Step 2)
($200,000 original purchase price of property / 2)= $100,000 June's share of half the original basis of property

$180,000 fair market value basis + $100,000 original basis = $280,000 basis in property after Henry's dealth
Loretta Myers and Steve Jones married on September 15, 2018. Steve moved into Loretta's house on December 1st of 2018. Loretta had owned and occupied the house for 15 years. The house was sold for $1,100,000 on January 30th of 2020. Loretta's basis for the home was $500,000. Choose the correct tax treatment for the gain on the sale of the residence

- Since Loretta has owned and occupied the residence for more than 2 of the last 5 years, the couple is entitled to an exclusion of $500,000.
- Since Loretta has owned and occupied the residence for more than 2 of the last 5 years, the couple is entitled to an exclusion of $250,000. Steve hasn't met the use test.
- The couple has not met the ownership AND use test as a couple so no exclusion is allowed.
- Since Loretta has owned and occupied the residence for more than 2 of the last 5 years, the couple is entitled to an exclusion of $250,000. Steve hasn't met the use test.

REASON:
- Gain may be excluded (up to $250,000 for unmarried taxpayers; up to $500,000 for married filing joint)

- since Loretta is the only one out of the two to pass the "ownership test" (owned the principal residence for 2 years out of a 5 year period) and the "use test" (lived in the principal residence for 2 years out of a 5 year period) she qualifies for $250,000

- since Steve moved into the house on December 1, 2018 and the house was sold on January 30, 2020; he fails the "use test" because that time period is equivalent to 1 year and 1 month (less than the 2 year requirement)
Tim sells his personal residence after owning and using the home as the principal residence for the last eight years. Tim basis at the time of sale was $260,000 and the home was sold for a net sales proceeds of $340,000. Tim borrows $60,000 to help with the financing of a new home and buys a new residence for $400,000. Which of the following statements correctly describes the tax result of this exchange to Tim?

- Tim has a realized gain of $80,000 on the sale of his home but the gain is deferred. He has a basis of $320,000 in his new home.

- Tim has a realized gain of $80,000 on the sale of his home but the gain is excluded. He has a basis of $320,000 in his new home.

- Tim has a realized gain of $80,000 on the sale of his home but the gain is excluded. He has a basis of $400,000 in his new home.

- Tim has a realized gain and recognized gain of $80,000 on the sale of his home. He has a basis of $400,000 in his new home.
- Tim has a realized gain of $80,000 on the sale of his home but the gain is excluded. He has a basis of $400,000 in his new home.

REASON:
Step 1) Calc the Realized Gain
- ($340,000 selling price - $260,000 purchase price) = $80,000 realized gain

- basis of new property acquired after exclusion treatment is the FAIR MARKET VALUE OF THE PROPERTY ACQUIRED which will correspond to the amount paid by the taxpayer
- so the $400,000 purchase price of new house is his new basis
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Charlie's REALIZED GAIN?
$400,000

CALC Realized Gain/Loss:
- Charlie has a built-in gain of $400,000 on his property ($800,000 fair market value - $400,000 adjusted basis)
1) Realized Gain: $400,000 built in gain from above
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Charlie's RECOGNIZED GAIN?
$300,000

CALC Recognized Gain
1) Recognized Gain $300,000
(equal to the boot received from Veronica of $300,000 ($200,000 mortgage liability assumed + $100,000 cash), which is the lower of the $400,000 realized gain and the $300,000 boot received)
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Veronica's REALIZED GAIN?
$100,000

CALC Realized Gain/Loss:
- Veronica has a built-in gain of $100,000 on her property ($500,000 fair market value - $400,000 adjusted basis)
1) Realized Gain: $400,000 built in gain from above
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Veronica's RECOGNIZED GAIN?
$0

CALC Recognized Gain:
1) Recognized Gain $0
(since Veronica is giving a boot Charlie of $300,000 ($200,000 mortgage liability assumed + $100,000 cash), they are unable to recognize any gain or loss
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Charlie's BASIS IN LIKE-KIND PROPERTY RECEIVED?
$400,000

CALC the Basis in Like-Kind Property Received:
3) Adjusted Basis: $400,000
Formula #1: ($500,000 value of property received - $100,000 deferred gain) which is the difference between the ($400,000 realized gain - $300,000 recognized gain or fair value of the boot received)
Charlie London, a landlord, exchanges an apartment building with a value of $800,000 and a basis of $400,000 with Veronica Landis, another landlord. In exchange, Charlie receives real estate with a basis of $400,000 and a value of $500,000 from Veronica. Veronica also assumes a $200,000 mortgage on Charlie's property and gives Charlie $100,000 in cash.

What is Veronica's BASIS IN LIKE-KIND PROPERTY RECEIVED?
700,000

CALC the Basis in Like-Kind Property Received:
3) Adjusted Basis: $700,000
Formula #1: ($800,000 value of property received - $100,000 deferred gain), which equals Veronica's realized gain amount since she did not have any recognized gain/loss
Choose the correct treatment of the liabilities when each party to a 1031 like-kind exchange transfers property that is encumbered by a liability and each receiving party assumes the liability transferred.

- One party is treated as giving boot property and the other party is treated as receiving boot property. The difference between the liabilities is determined. The party giving up the greater liability is treated as receiving boot in the amount of the difference and the party assuming the greater liability is treated as giving boot in the amount of the difference.

- Both parties are treated as giving and receiving boot in the amount of the liabilities.

- Both parties are treated as receiving boot in the amount of the difference

- The liabilities are ignored for purposes of determining the tax effects of the transaction.
- One party is treated as giving boot property and the other party is treated as receiving boot property. The difference between the liabilities is determined. The party giving up the greater liability is treated as receiving boot in the amount of the difference and the party assuming the greater liability is treated as giving boot in the amount of the difference.

REASON:
- if mutual liabilities are exchanged, only the party relinquishing the greater of the two liabilities is considered to receive boot; the amount of boot received is the difference between the liabilities
Assume a taxpayer gives up business or income producing property due to an involuntary conversion (casualty or condemnation).

The taxpayer has a realized gain on the transaction.

- Taxpayer must reinvest the proceeds in qualified replacement property within the required time period in order to defer the gain.

- Involuntary conversions are treated as sales so the taxpayer will have to recognize the realized gain.

- Taxpayer must reinvest proceeds within 180 days after receiving the casualty or condemnation proceeds in order to defer the gain.

- Taxpayer must reinvest at least the amount of the casualty or condemnation proceeds in order to defer recognition of gain. Any amount of the proceeds not reinvested is treated as boot received.
- Taxpayer must reinvest the proceeds in qualified replacement property within the required time period in order to defer the gain.

- Taxpayer must reinvest at least the amount of the casualty or condemnation proceeds in order to defer recognition of gain. Any amount of the proceeds not reinvested is treated as boot received.
Assume a taxpayer gives up business or income producing property due to an involuntary conversion (casualty or condemnation).

The taxpayer has a realized loss on the transaction.

- If the taxpayer acquires replacement property, the basis of the replacement property simply will be its fair market value.

- In this case, the involuntary conversion is treated like a sale and the realized loss is recognized.

- If the taxpayer acquires replacement property, the basis of the new property will be the same as the basis of the old property.

- Taxpayer must reinvest at least the amount of the casualty or condemnation proceeds in order to defer loss recognition.
- If the taxpayer acquires replacement property, the basis of the replacement property simply will be its fair market value.

- In this case, the involuntary conversion is treated like a sale and the realized loss is recognized.
Which of the following assets are Section 1231 assets that are subject to Section 1245 recapture?

- a delivery vehicle
- An apartment building
- An investor's option contract
- production machinery
- office technology
- a delivery vehicle
- production machinery
- office technology

REASON:
- Section 1245 recapture assets include: (1) equipment, (2) technology, (3) vehicles, (4) machinery, (5) furnishings
Luella Vust sells an apartment building for $750,000. Luella bought the apartment building for $650,000 and claimed $100,000 of depreciation deductions on the building. Assume Luella is a taxpayer in the 35% marginal tax bracket but she isn't subject to the 20% default capital gains rate at her income level.
Select the correct statement to describe the tax treatment of this gain.


- Luella will have a recognized gain of $100,000 that will be taxed at her marginal bracket of 35%.

- Luella will have a recognized gain of $200,000 which will be taxed at 15%.

- Luella will have a recognized gain of $200,000. $100,000 will be taxed at 25% and $100,000 will be taxed at 15%.

- Luella will have a recognized gain of $100,000 that will be taxed at 15%.
- Luella will have a recognized gain of $200,000. $100,000 will be taxed at 25% and $100,000 will be taxed at 15%.

REASON:
- Lookback Recapture problem
- Luella has a gain of $200,000 total
($750,000 selling price - ($650,000 purchase price - $100,000 depreciation)
Luella Criteria
- unmarried (single)
- taxable income: unknown
- it lists that her income level does not subject her to the 20% default capital gains rate, so assume a 15% rate

- a long-term 1231 gain that is eligible for long-term capital treatment, but the gain up to the depreciation amount taken is taxed at the maximum 25% rate
- so 100,000 of the gain will be taxed at 25% and 100,000 will be taxed at 15%
Ted Barnes earns wages of $180,000 and dividends of $3,000. Tim sold some mutual fund shares that he held for 10 months for a gain of $5,000. Tim also sold some stock shares that he held for two years for a loss of $10,000. What is Tim's AGI as a result of these financial items?
$180,000

Step 1: Calc Adjusted Gross Income
Compensation Income $180,000
(+) Dividend Income $3,000
-------------------------
Adjusted Gross Income $183,000

Step 2: Calc Net Capital Gain/Loss:
Short-Term Capital Gain $5,000)
(+) Long-Term Capital Loss ($10,000)
-------------------------
Net Capital Loss $5,000

Step 3: Calc Adjustments to AGI
Adjusted Gross Income $183,000
(-) Maximum Net Capital Loss Deduction ($3,000)
---------------------------
Sherman's AGI $180,000

NOTE
the remaining $2,000 net capital loss ($5,000 total net capital loss - $3,000 maximum deduction per return, will be carried forward to the next year
Dolando, Inc., a C corporation, earns $180,000 of net business income and interest income of $2,000. Dolando sold some mutual fund shares that it held for 10 months for a gain of $5,000. Dolando also sold some stock shares that it held for two years for a loss of $10,000. What is Dolando's taxable income (Corporations don't have AGI or standard deductions) as a result of these financial items?
182,000

CALC:
Net Business Income $180,000
(+) Interest Income $2,000
----------------------
Taxable Income $182,000

REASON:
- corporations do not have the AGI subtotals and do not have standard deduction, meaning that a C corporations taxable income does not change from capital gains/loss
- rather the capital loss may be carried back 3 years or forward 5 years
Merker Auto, Inc. is a closely held C corporation that buys and sells cars and also rents some of the vehicles acquired. Merker sells a rental automobile for $10,000. Merker had bought the auto for $20,000 but had depreciated $14,000 of its cost.
Select the correct tax treatment of this transaction for Merker.

- Merker has a capital gain of $4,000.

- Merker has an ordinary gain of $4,000 due to Section 1245 recapture.

- Merker has an ordinary gain of $4,000 because this is an ordinary asset.

- Merker may defer this gain by acquiring qualified replacement property
- Merker has an ordinary gain of $4,000 due to Section 1245 recapture.

REASON:
Merker has a gain of $4,000
($10,000 selling price - ($20,000 purchase price - $14,000 depreciation) = $4,000

- recapture under section 1245 is all gains up to prior depreciation taken on non-real estate property, and requires that all gain up to recapture income (selling price - (purchase price - depreciation) be taxed as ordinary gain no preferential rates
Merker Auto, Inc. is a closely held C corporation that buys and sells cars and also rents some of the vehicles acquired. Merker sells a rental automobile for $10,000. Merker had bought the auto for $20,000 but had depreciated $8,000 of its cost.
Select the correct tax treatment of this transaction for Merker.

- Merker has a recognized capital loss of $2,000.

- Merker has a recognized ordinary loss of $2,000 because it is an ordinary asset

- Merker has a recognized ordinary loss of $2,000 because losses on sales of Section 1231 assets are ordinary losses

- Merker may defer this loss by acquiring qualified replacement property
- Merker has a recognized ordinary loss of $2,000 because losses on sales of Section 1231 assets are ordinary losses

REASON:
Merker has a loss of $2,000
($10,000 selling price - ($20,000 purchase price - $8,000 depreciation) = ($2,000) loss

- If 1231 assets are sold for a net loss, the loss is treated as an ordinary loss (which is fully deductible)
Chuck Dobbs is a single individual with taxable income of $35,000 for the 2020 tax year. His marginal tax bracket is 12%. Included in this amount is a $5,000 gain from the sale of mutual fund shares on December 5th of 2020. Chuck bought these shares on January 16th, 2016.
The $5,000 gain from the sale of the mutual fund shares will be taxed at a ______ rate.

- 12%
- 15%
- 0%
- none of the above
- 0%

REASON:
- its considered a long-term gain because he bought the shares on Jan. 16, 2016 and sold them on Dec. 5, 2020 (more than one year and a day)
- if capital assets that are held long-term are sold for a gain, the lower rate between the preferential rate and marginal rate is used
- use the Default Preferential Rate per Taxable Income Table (2020) from notes
- Chucks taxable income of $35,000 puts him in the 0% rate (up to $40,400 income) so 0% is the tax rate used because it's less than his marginal tax rate of 12%
Dana Walton is a single individual with taxable income of $35,000 for the 2019 tax year. Her marginal tax bracket is 12%. Included in this amount is a $2,000 gain from the sale of mutual fund shares on December 5th of 2020. Dana bought these shares on January 16th, 2020.
The $2,000 gain from the sale of the mutual fund shares will be taxed at a ______ rate.

- 12%
- 15%
- 0%
- none of the above
- 12%

REASON:
- it's considered a short-term gain because she bought the shares on Jan. 16, 2020 and sold them on Dec. 5, 2020 (less than one year and a day)
- if capital assets that are held short-term are sold for a gain, the gain is taxed at the taxpayers marginal tax rate
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