In 2013, Ms. Petrov bought her only house for $180,000. In January 2022, she sold the house for $500,000, and bought a condo to live in. She paid $30,000 in sales commissions and legal fees on the sale. What would be the amount of the taxable capital gain Ms. Petrov would report in 2022?

In 2013, Ms. Petrov bought her only house for $180,000. In January 2022, she sold the house for $500,000, and bought a condo to live in. She paid $30,000 in sales commissions and legal fees on the sale. What would be the amount of the taxable capital gain Ms. Petrov would report in 2022?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Definition Definition Increase in the value of a capital asset and the amount that is realized when the asset is sold off. A capital gain may be short-term or long-term depending on the tenure for which the asset is held.

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