Question

Tax credits are dollar-for-dollar reductions in taxable income.

	True
	False

Social security taxes are paid on earned income but not on investment income.

	True
	False

Dividends received from the stock you own will be taxable income.

	True
	False

Murray (age 68, single) just sold his home of 35 years so that he could relocate nearer his grandchildren. He realized a $400,000 capital gain on the home. How much of this gain will Murray have to pay taxes on?

	$400,000
	$300,000
	$250,000
	$150,000
	$           0

Answer 1

1)False

Reason: A tax credit can reduce your taxliability dollar-for-dollar. Unlike a tax deduction, which reduces taxable income, a taxpayer can subtract a taxcredit from the amount of taxes they owe, lowering their tax liability dollar-for-dollar.

2)True

Reason:The Social Security tax is applied to income earned by employees and self-employed taxpayers.

3)True

Reason: There are two types of dividend - Ordinary dividends and qualified dividends each have different tax rates:

• Ordinary dividends are taxed as ordinary income.
• Qualified dividends are taxed at a 20%, 15%, or a 0% rate, under current law

4)It depends on how long you owned and lived in the home before the sale and how much profit you made.

• If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

Muray will have to pay tax on $150,000 after getting deduction of $250,000

So the answer is $ 150,000