Sam inherited a car from his father on June 2 2014 He sold t

Sam inherited a car from his father on June 2, 2014. He sold the car on January 1, 2015.   He recognized a capital gain of $40,000. Is the gain short-term or long-term capital gain and why? How much tax does he pay? Assume no other income or deductions. Use the following tax bracket.

If taxable income is:                                      The tax is:

Not over $36,900                                           15% of taxable income.

Over $36,900 but not over $89,150              $5,535, plus 28% of the excess over $36,900.

Over $89,150 but not over $140,000            $20,165, plus 31% of the excess over $89,150.

Over $140,000 but not over $250,000          $35,928.50, plus 36% of the excess over $140,000.

Over $250,000                                                $75,528.50, plus 39.6% of the excess over $250k.

Solution

As Car was sold before holding for less than one year by Sam,

capital gain will be short-term.and not long-term.

And the amount of tax to be paid by Sam will be:

$36900X15?100 = $5535

$40000-$36900=$3100X28/100 = $ 868

total tax payble = $6403