Short-Term Capital Gains

B is correct. Stock B qualifies for long-term capital gains treatment (held more than one year) and would be taxed at the preferential 15% rate for most taxpayers in the 32% bracket, resulting in $2,250 tax ($15,000 × 0.15). Stock A would generate a short-term capital gain taxed at Marcus's ordinary income rate of 32%, resulting in $4,800 tax ($15,000 × 0.32). Selling Stock B saves Marcus $2,550 in federal taxes.

A is incorrect because shorter holding periods result in higher tax rates for short-term gains, not lower. C is incorrect because splitting the sale would create both short-term and long-term gains, resulting in higher total tax than selling only the long-term position. D is incorrect because the holding period creates a significant tax difference: 32% ordinary income rate versus 15% long-term capital gains rate.

C is correct. Short-term capital gains are taxed at the taxpayer's ordinary income tax rates, which range from 10% to 37% for federal income tax depending on the taxpayer's total taxable income and filing status. Short-term gains receive no preferential treatment and are taxed identically to wages, salary, interest, and other ordinary income.

A is incorrect because 0%, 15%, or 20% are the preferential long-term capital gains rates, not short-term rates. B is incorrect because 28% is the maximum rate for collectibles (coins, art, antiques), not the standard short-term capital gains treatment. D is incorrect because while the 3.8% net investment income tax (NIIT) may apply to high-income taxpayers on investment income including capital gains, the base tax rate for short-term gains is the ordinary income rate (not ordinary rate plus NIIT automatically).

B is correct. Calculate the tax difference:

Short-term capital gains tax (ordinary income rate):
$10,000 × 24% = $2,400

Long-term capital gains tax (preferential rate):
$10,000 × 15% = $1,500

Difference in tax owed:
$2,400 - $1,500 = $900

By holding the asset for more than one year to qualify for long-term treatment, the investor saves $900 in federal taxes on the $10,000 gain.

A ($400) results from using incorrect rates or calculation errors. C ($1,500) is the long-term capital gains tax amount, not the difference. D ($2,400) is the short-term capital gains tax amount, not the difference.

C is correct (the EXCEPT answer). Short-term capital gains do NOT receive a 50% exclusion. They are fully taxable at ordinary income rates with no special deductions or exclusions. The 50% exclusion may confuse students with qualified small business stock (QSBS) rules under Section 1202, which is a completely different and highly specialized provision.

A is accurate: short-term capital gains result from assets held for one year or less (365 days or fewer from purchase). B is accurate: short-term gains are taxed at ordinary income rates (10%-37% federal brackets). D is accurate: short-term gains receive no preferential treatment and do not qualify for the 0%, 15%, or 20% long-term capital gains rates.

D is correct. All four statements are accurate.

Statement 1 is TRUE: The stock was held for 10 months (less than one year), so the gain qualifies as a short-term capital gain.

Statement 2 is TRUE: Short-term capital gains are taxed at ordinary income rates. The taxpayer is in the 32% bracket, so the tax is $20,000 × 0.32 = $6,400.

Statement 3 is TRUE: If the taxpayer held for 3 more months (total of 13 months, which is more than one year), the gain would be long-term and taxed at 15% for most taxpayers in the 32% bracket. Long-term tax would be $20,000 × 0.15 = $3,000. The savings would be $6,400 - $3,000 = $3,400.

Statement 4 is TRUE: Short-term capital gains are taxed at ordinary income rates, which is the same rate applied to salary, wages, and other ordinary income. Both are taxed at the taxpayer's marginal rate (32% in this case).