Question

Question 2 An individual investor with $400,000 of annual taxable income purchased land for $120,000 and now has an offer to sell it for $150,000. The individual is already in the 35 % federal ordinary income tax bracket and pays a 6% state tax rate in Michigan on ordinary income. The applicable federal long term capital gains tax rate is 15 % but there is no corresponding reduction at the state level. State income taxes are deductible in computing federal taxable income. Calculate the after tax profit for the sale if it occurred 8 months after the date of purchase (8 pts) a) b) Calculate the after tax profit for the sale if it occurred 13 months after the date of purchase? (8 pts) How would you approach parts a) and b) if the investor was a C-Corporation? Assume this is c) 2019 tax values. (3 pts)

Answer 1

Sale Price - 1950,000 Purchage Price - 1,20,000 Price Gross profit = sales price - Purchage a 1,50,000 - 1,20,000 a 30,000 (-) TAX .. we know that FEDERAL TAX 35% of Gloss Brofºt Es federal tax amount = 35% of Gross P510 fot = 30,000 x 354. 100 = 10,500 . Give state tax =64 : state tax amount = 6% of gross Profit = 30,000 y 100 = 1800 Net profit after tax = federal tave amount & state for fare amount - 10,500 + 1800 = 17,700

Hence; the after tane Profit would be 17,700 this is short term capital gain (6) Sales Price = 1,50,000 6-7 perc hage Price = 1,20,000 Gross profet - sales parice - Perchage price = 1,50,000 - 1,20,000 - 30,000 - Tax=150%. Of 92055 Profit 106 x 30,000 = 4,500 Net Doro fit after fax = Gross Blogit - Tax - 30,000 - 4,500 = 25,500 Summary : The Profit is taxed 154. for 13 months

as a seporate (©) C- C09790 nation is treated entity from its owner The tax rate for c-componation is 21%. Sales Price - - 1,50,000 7,20,000 6) Perchage Price Gross profit = sales price - Prochage Price = 1,50,000 - 1,20,000 - 30,000 6) Tare :21), of 97055 Profit 22/0% X 30,000 100 = 6,300 Net profit after tare = Gross Profit - Tax = 30,000 - 6,300 - 23,700 summary : – Hence, for C-composation med Profft af de faire - 23,700