Hilton, a single taxpayer in the 24% marginal tax bracket, has $16,000 of nonrecaptured net Sec. 1231 losses, at the beginning of a year in which he had the following transactions:-Sale of Asset A at a $10,000 1231 gain, all of which is unrecaptured Sec. 1250 gain-Sale of Asset B at a $13,000 1231 gainHow are the items reported this year and at which rate(s) are the amounts taxed?
What will be an ideal response?
Asset A- The entire gain from the sale of Asset A is ordinary income due to the five-year lookback. The full $10,000 gain will be taxed at 24%.
Asset B- As a result of the five-year lookback rule, $6,000 of the gain on the sale of Asset B is ordinary income ($16,000 nonrecaptured losses less $10,000 ordinary income on sale of asset A) taxed at 24%; the remaining $7,000 1231 gain is taxed at 15%.
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