Asked by Ranjani Ramaswamy on May 14, 2024
Verified
Leslie buys a painting from a collector for resale in her gallery.She purchased the painting for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?
A) $4,000 gain subject to 28% tax rate.
B) $4,000 Section 1245 gain.
C) $4,000 ordinary income.
D) $5,000 ordinary gain and $4,000 Section 1231 gain.
Section 1245
A provision in the U.S. tax code that treats the gain from the sale of certain types of property (primarily depreciable personal property) as ordinary income rather than capital gain.
Ordinary Income
Income earned through wages, salaries, commissions, and interest, subject to standard tax rates.
- Recognize the distinct tax implications applicable to various asset categories.
- Identify the distinctions between ordinary income and capital gains.
Verified Answer
MM
Mugwiria MonicahMay 16, 2024
Final Answer :
C
Explanation :
Since Leslie bought the painting for resale in her gallery, this transaction falls under ordinary income rather than capital gains. The gain on the sale is the difference between the selling price ($9,000) and the purchase price ($5,000), which is $4,000. As it is ordinary income, it is subject to ordinary income tax rates. Therefore, choice C is the correct answer.
Learning Objectives
- Recognize the distinct tax implications applicable to various asset categories.
- Identify the distinctions between ordinary income and capital gains.
Related questions
Jeannie Purchased 1,000 Shares in Course Developers for $10,000 on ...
A Capital Asset Includes All of the Following Except ...
Norman Received Shares of Stock as a Gift from His ...
Oliver Purchased the Following Stock of Doggie Treats Inc \(\begin{array}{ll} 2015 & ...
Stephanie Sold the Following Stock in 2016 AComplete the Following ...