Problem:
Melissa, an individual, began a business six years ago and has sold §1231 assets with $4,700 of losses in the last five years. She owned each asset for several years. In the current year, she sold the following business assets:
|
Asset
|
Original Cost
|
Tax Accumulated
Depreciation
|
Sales Price
|
|
Computer
|
$2,150
|
$700
|
$3,000
|
|
Machinery
|
$15,500
|
$3,400
|
$18,000
|
|
Land
|
$30,000
|
0
|
$45,000
|
|
Building
|
$100,000
|
$10,000
|
$85,000
|
Required:
Question 1: Calculate and list the amount of gain/loss for each asset and the character of the gain/loss
Question 2: Assume Melissa's marginal ordinary income tax rate is 35%. What effect do the gains and losses have on her tax liability in total?
Note: Please provide reasons to support your answer.