In year 1, Aldo sold investment land with a $100,000 tax basis for $95,000. Payment consisted of $15,000 cash down and the purchaser's note for $80,000. The note is being paid in 10 annual installments of $8,000, beginning in year 2. Required: a. Compute Aldo's recognized loss in year 1. b. In year 4, Aldo pledged the note received from the purchaser as partial collateral for a $75,000 bank loan. The unpaid principal at date of pledge was $56,000. Determine the tax consequences of this pledge to Aldo. Complete this question by entering your answers in the tabs below. Required A Required B Compute Aldo's recognized loss in year 1. Recognized loss 789 < Required A Required B >

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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.