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[The following information applies to the questions displayed below.] Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as 1231 assets. The first is machinery and will generate a $12,500 1231 loss on the sale. The second is land that will generate a $9,900 1231 gain on the sale. Arunas ordinary marginal tax rate is 30 percent. (Input all amounts as positive values.)
a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Arunas tax liability?
Aruna's tax will [Increase/Decrease] by $_______________
b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on Arunas tax liability for each year?
Aruna's tax [Increases/Decreases] in year 1 by $___________
Aruna's tax [Increases/Decreases] in year 2 by $___________
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