following information applies to the questions displayed below) Aruna, a sole pr

Question

following information applies to the questions displayed below) Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as 51231 assets, The firstis machinery and will generate a $12 500 s123 los on the sale The second is land that will generate a $9,900 §1231 gain on the sale. Arunas ordinary marginal tax rate is 30 percent riput all amounts as posit ewhes value Requred 1.00 points a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax iability?

Explanation / Answer

Answer a. Particulars Amount Tax Rate TAX Amt. Mach - Sec 1231 Loss - Ordinary         (12,500) 30%         (3,750) Land - Sec 1231 Gain - Ordinary              9,000 30%           2,700 Tax         (1,050) Aruna's tax will decreased by           1,050 Answer b. Particulars Amount Tax Rate TAX Amt. Year 1- Land - Sec 1231 Gain - Ordinary              9,000 15%           1,350 (Taxes at preferential rate - 15%) Year 2 - Mach - Sec 1231 Loss - Ordinary         (12,500) 30%         (3,750) Tax         (2,400) Aruna's tax increased in Year 1 by           1,350 Aruna's tax decreased in Year 2 by           3,750

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