During the current year, Kayla recognizes a $40,000 Sec. 1231 gain on sale of land and a $22,000 Sec. 1231 loss on the sale of land. Prior to this, Kayla's only Sec. 1231 item was a $10,000 loss six years ago. Kayla is in the 24% marginal tax bracket. The amount of tax resulting from these transactions is
A) $2,700.
B) $3,600.
C) $4,000.
D) $5,040.
A) $2,700.
The lookback rule does not apply because the last 1231 loss was six years ago. Therefore, the entire amount ($40,000- $22,000) is LTCG and is taxed at 15%. 15% × $18,000 = $2,700.
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