Question 1

A taxpayer sold stock for $10,000 that was purchased two years ago for $6,000. The taxpayer is in the 37% ordinary income tax bracket and the 20% long-term capital gains bracket. What is the tax liability on this sale?

Accepted Answer

1. Calculate Gain: $10k - $6k = $4k. 2. Determine Character: Held > 1 year = Long Term. 3. Determine Rate: High income (37% bracket) implies 20% LTCG rate (max rate). 4. Calc Tax: $4k * 20% = $800.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the ordinary income rate (37%) to a long-term capital gain.

A taxpayer sold stock for $10,000 that was purchased two years ago for $6,000. The taxpayer is in the 37% ordinary income tax bracket and the 20% long-term capital gains bracket. What is the tax liability on this sale?

How to approach this question

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Common mistakes

Practice the full CPA REG Practice Exam 3

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