In 2023, Malcolm decided to sell all of the business assets he had been using in his sole proprietorship. Hehad owned and used the assets in his business for several years.The business sale agreement specified that $280,000 of the $400,000 total sales price was allocable to acommercial building, and $20,000 was allocable to the land to which the building is attached. Malcolm hadpurchased the property several years ago, and he used it exclusively for business purposes during theperiod he owned it. Assuming Malcolm has a gain from the sale of his business assets, how will the gainfrom the sale of the land be treated for tax purposes?It will be taxed at the tax rates that apply to:Long-term capital gains.Ordinary income.The sale of qualified small business stock.Unrecaptured Section 1250 gains.

Tax rate refers to the percentage at which income, profits, or transactions are taxed by…

Answered: It will be taxed at the tax rates that…

It will be taxed at the tax rates that apply to: Long-term capital gains. Ordinary income. The sale of qualified small business stock. Unrecaptured Section 1250 gains.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

Question

In 2023, Malcolm decided to sell all of the business assets he had been using in his sole proprietorship. He
had owned and used the assets in his business for several years.
The business sale agreement specified that $280,000 of the $400,000 total sales price was allocable to a
commercial building, and $20,000 was allocable to the land to which the building is attached. Malcolm had
purchased the property several years ago, and he used it exclusively for business purposes during the
period he owned it. Assuming Malcolm has a gain from the sale of his business assets, how will the gain
from the sale of the land be treated for tax purposes?
It will be taxed at the tax rates that apply to:
Long-term capital gains.
Ordinary income.
The sale of qualified small business stock.
Unrecaptured Section 1250 gains.

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