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 ​$2 comma 000 qualified dividend distribution from her mutual​ fund, and Investor B received ​$2 comma 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 ​$2 comma 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?

To determine which investment provides the greatest after-tax amount for each investor, we need to look at the tax treatment for each type of income and calculate the after-tax amount based on their respective tax rates.

### Given Assumptions:
- All investors have other taxable income of $100,000.
- We assume the investments have been held for 3 or more years, meaning qualified dividends and long-term capital gains tax rates apply.
- There are no state taxes, commissions, or sales charges involved.

### Types of Income:
1. **Investor A**: $2,000 in **qualified dividend income**.
2. **Investor B**: $2,000 in **interest income** from a certificate of deposit (CD).
3. **Investor C**: $2,000 in **long-term capital gains** from the sale of appreciated stock.

### Federal Tax Rates for the Given Income Level:
- **Qualified Dividends**: Qualified dividends are taxed at the same rate as long-term capital gains. Based on the taxable income of $100,000, the long-term capital gains tax rate will likely be **15%** for Investor A.
- **Interest Income**: Interest income is taxed at **ordinary income tax rates**, which would be the marginal tax rate for someone with $100,000 in taxable income. Based on the 2023 tax brackets, this would likely fall in the **24% tax bracket** for Investor B.
- **Long-Term Capital Gains**: Long-term capital gains are taxed at a special rate, likely **15%** for Investor C, similar to qualified dividends.

### After-Tax Calculations:

#### 1. **Investor A (Qualified Dividends)**:
- Qualified dividends are taxed at 15%.
- Tax on $2,000 = $2,000 × 0.15 = $300.
- After-tax amount = $2,000 - $300 = **$1,700**.

#### 2. **Investor B (Interest Income)**:
- Interest income is taxed at the marginal income tax rate (24%).
- Tax on $2,000 = $2,000 × 0.24 = $480.
- After-tax amount = $2,000 - $480 = **$1,520**.

#### 3. **Investor C (Long-Term Capital Gains)**:
- Long-term capital gains are taxed at 15%.
- Tax on $2,000 = $2,000 × 0.15 = $300.
- After-tax amount = $2,000 - $300 = **$1,700**.

### Comparison of After-Tax Amounts:
- Investor A (Qualified Dividends): $1,700
- Investor B (Interest Income): $1,520
- Investor C (Long-Term Capital Gains): $1,700

### Conclusion:
Both **Investor A** (qualified dividends) and **Investor C** (long-term capital gains) will receive the highest after-tax amount of **$1,700**. Investor B, who received interest income, has the lowest after-tax amount of **$1,520** because interest is taxed at the higher ordinary income tax rate.

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Do you have any questions or need more details on any part of this explanation?

Here are 5 related questions you might want to consider:
1. How would the results change if the investors had lower taxable income, say $50,000?
2. What are the tax implications if the interest income was earned from a municipal bond?
3. How does the holding period affect the tax treatment of dividends or capital gains?
4. What if Investor C had a short-term capital gain instead of a long-term one?
5. How would state income taxes impact the after-tax results?

**Tip**: Holding investments for over a year qualifies gains as long-term, which often leads to lower tax rates than short-term gains taxed as ordinary income.

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 $2,000 qualified dividend distribution from her mutual​ fund, and Investor B received $2,000 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 $2,000. 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?

Explore the tax implications for different types of income for three investors with $2,000 each in qualified dividends, interest income, and long-term capital gains. Learn how to calculate the after-tax amounts based on income tax rates. This detailed analysis is ideal for college-level finance or taxation students.

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