Consider three unmarried investors who need to partially liquidate investments to raise cash. In this​ case, all investments have been held for 3 or more years. Investor A waited for a 

​$1 comma 0001,000 

qualified dividend distribution from her mutual​ fund, and Investor B received 

​$1 comma 0001,000 

in interest income from a certificate of deposit.​ However, because Investor C could not wait for a​ distribution, he decided to sell appreciated stock shares with a​ long-term capital gain of 

​$1 comma 0001,000. 

Assuming no​ commissions, no sales​ charges, no state income​ tax, and other taxable income of​ $100,000, which investment will provide the greatest​ after-tax amount? 

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Part 1

Assuming no​ commissions, no sales​ charges, no state income​ tax, and other taxable income of​ $100,000, the investments that will have the greatest​ after-tax amount belong​ to:  ​(Select best answer​ below.)

A.

Investors A and B.

B.

Investors B and C.

C.

Investors A and C.

D.

Investors​ A, B, and C.

To determine which investment provides the greatest after-tax amount, we need to analyze the tax treatment of the income received by each investor:

1. **Investor A (Qualified Dividend Income of $1,000)**:
   - Qualified dividends are taxed at the long-term capital gains rate. Since the other taxable income is $100,000, the investor likely falls in the 15% capital gains tax bracket.
   - So, tax on the dividend = $ 1,000 \times 0.15 = 150 $.
   - After-tax amount = $ 1,000 - 150 = 850 $.

2. **Investor B (Interest Income of $1,000)**:
   - Interest income is taxed as ordinary income. With other taxable income of $100,000, Investor B is likely in the 24% tax bracket for ordinary income.
   - Tax on interest = $ 1,000 \times 0.24 = 240 $.
   - After-tax amount = $ 1,000 - 240 = 760 $.

3. **Investor C (Capital Gains of $1,000)**:
   - Long-term capital gains are taxed at the same rate as qualified dividends, which in this case would also be 15%.
   - Tax on capital gains = $ 1,000 \times 0.15 = 150 $.
   - After-tax amount = $ 1,000 - 150 = 850 $.

### Conclusion:
- Investors A and C receive the highest after-tax amount of $850 each, while Investor B receives $760.
- Thus, **Investors A and C** will have the greatest after-tax amount.

**Correct answer: C. Investors A and C.**

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Do you want further details or have any questions?

Here are 5 related questions for further exploration:
1. How does the capital gains tax rate vary by income level?
2. What is the tax difference between qualified dividends and non-qualified dividends?
3. How are ordinary dividends taxed compared to qualified dividends?
4. What are the different tax brackets for ordinary income?
5. How can holding periods affect long-term versus short-term capital gains?

**Tip:** Holding investments for longer than a year can qualify gains for lower long-term capital gains tax rates, making it a more tax-efficient strategy for many investors.

Consider three unmarried investors who need to partially liquidate investments to raise cash. In this case, all investments have been held for 3 or more years. Investor A waited for a $1,000 qualified dividend distribution from her mutual fund, and Investor B received $1,000 in interest income from a certificate of deposit. However, because Investor C could not wait for a distribution, he decided to sell appreciated stock shares with a long-term capital gain of $1,000. Assuming no commissions, no sales charges, no state income tax, and other taxable income of $100,000, which investment will provide the greatest after-tax amount?

Analyze which investment provides the greatest after-tax amount for investors with qualified dividends, interest income, and long-term capital gains. Learn how different income types are taxed and compare after-tax returns based on a $1,000 income scenario and $100,000 taxable income. Suitable for high school and college-level students.

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