Brandon, an individual, began business four years ago and has sold $1231 assets with $5,200 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 Machinery Land Building Original Cost $30,400 44,000 98,000 Accumulated Depreciation $7,400 0 Gain/Loss O $23,200 ordinary income and $7.424 tax liability O $23,200 51231 gain and $3,480 tax liability O $10,600 51231 gain, $12,600 ordinary income, and $5,622 tax liability O $12,600 $1231 gain, $10,600 ordinary income, and $5,282 tax liability None of the choices are correct. $10,200 22.000 (9.000) 24,000 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.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.