Brandon, an individual, began business four years ago and has sold §1231 assets with $6,000 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Original Accumulated Cost Depreciation Gain/Loss $ 10,000 20,000 (5,000) Asset Machinery $ 30,000 $ 7,000 Land 40,000 0 Building 90,000 20,000 Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Which of the following is true regarding the §1231 look-back rule? Which one of the following is not a requirement of a deferred like-kind exchange? Which of the following is not an involuntary conversion?

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.