Question

Braden is in the 15% marginal tax bracket. He has a $500 long-term capital gain on bonds he sold this year. If the $500 were taxed as ordinary income, Braden would remain in the 15% rate bracket. Since it is a long-term capital gain on stock sales, Braden will pay tax of ______________on this income. If the $500 gain was on collectibles, taxed at a maximum 28%, Braden would incur tax of _______________ on this income.

Answer 1

Braden will pay no tax on a $500 long-term capital gain on bonds due to his 15% marginal tax bracket, which has a 0% long-term capital gains rate. However, if the $500 gain was on collectibles with a tax rate of 28%, he would have to pay $140 in taxes.

Step-by-step explanation:

Since Braden is in the 15% marginal tax bracket, the tax treatment of his capital gains depends on the type of asset. For long-term capital gains on stocks and bonds, the tax rate is typically lower than the marginal tax rate on ordinary income. Since Braden is in the 15% income tax bracket, his long-term capital gains would not be taxed because the long-term capital gains tax rate for this bracket is 0%. Therefore, on a $500 long-term capital gain on bonds, Braden will pay tax of $0.

However, if the $500 gain was on collectibles, which are taxed at a maximum rate of 28%, Braden would incur a tax of $140 on this income ($500 × 28%). Collectibles include items like art, antiques, precious metals, and certain coin collections, which are subject to higher tax rates than other types of capital assets.