Question

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago. Lana amortized $200 of the original
issue discount and then sold the bond for $1,800. Which of the following statements is correct?

a. Lana has $10 of long-term capital loss.

b. Lana has $190 of long-term capital gain.

c. Lana has no capital gain or loss.

d. Lana has $190 of long-term capital loss.

Ryan has the following capital gains and losses for 2018: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and
$6,000 0%/15%/20% gain. Which of the following is correct:

a. The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.

b. The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain.

c. The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain.

d. The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.

In 2018, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified
dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is
correct?

a. No more than $13,000 of Satesh’s taxable income is taxed at 0%.

b. No more than $7,000 of Satesh’s taxable income is taxed at 0%.

c. No more than $15,000 of Satesh’s taxable income is taxed at 0%.

d. None of Satesh’s taxable income is taxed at 0%.

Blue Company sold machinery for $45,000 on December 23, 2018. The machinery had been acquired on April 1,
2016, for $69,000 and its adjusted basis was $34,200. The § 1231 gain, § 1245 recapture gain, and § 1231 loss from
this transaction are:

a. $0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231 loss.

b. $0 § 1231 gain, $0 § 1245 recapture gain, $14,800 § 1231 loss.

c. $0 § 1231 gain, $34,200 § 1245 recapture gain, $0 § 1231 loss.

d. $0 § 1231 gain, $10,800 § 1245 recapture gain, $34,200 § 1231 loss.

Answer 1

1. The correct answer is option B : Lana has $190 of long-term capital gain.

Lana's original basis of $1410 is increased by $200 of original issue discount amortization. Her basis is $1610 when the bond is sold for $1800, Therefore long term gain is $190.

2. The correct answer is option A : The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.

STCG $6,000 offsets the highest tax rate gain, then remaining loss offsets the next highest tax rate gain. Thus 6,000 STCL - $5,000 28% gain - $1000 25% gain leaves $1,000 25% gain and $6,000 0%/15%/20% gain.

3. The correct answer is option C. No more than $15,000 of Satesh’s taxable income is taxed at 0%.

The net LTCG is $8,000 ($13,000 - $5000). The $7,000 qualified dividend income is added to the 0%/15%/20% long-term capital gain and the $15,000 is eligible for the 0%/15%/20% alternative tax rate.

4. The correct answer is option A :  $0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231 loss.

Gain $45,000 - $34,200 = $10,800