Brandon, an Individual, Began Business Four Years Ago and Has

Multiple Choice

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 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: $$\begin{array} { l r r r r } &&{ \text { Accurnulated } }\\\text { Asset } & \text { Original Cost } &\text { Depreciation } & \text { Gair/Loss } \\\text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\text { Land } & 40,000 & 0 & 20,000 \\\text { Building } & 90,000 & 20,000 & ( 5,000 ) \end{array}$$ Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?
Use dividends and capital gains tax rates for reference.

A) $25,000 ordinary income and $8,000 tax liability.
B) $25,000 §1231 gain and $3,750 tax liability.
C) $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability.
D) $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability.
E) None of the choices are correct.