Suppose that you pay $200,000 for a financial asset in one year and sell it for...
Suppose that you pay $200,000 for a financial asset in one year and sell it for 35% more 10 years later. If during those 10 years inflation had driven average asset prices up by 5%, your real capital gain would be
A. $60,000, and you would have to pay taxes on $60,000.
B. $10,000, but you would have to pay taxes on $60,000.
C. $$10,000, but you would have to pay taxes on $70,000.
D. $60,000, but you would have to pay taxes on $70,000.
Homework Answers
Capital gain = 35% * 200000 = 70000
Inflation = 5% * 200000 = 10000
Real gain = 70000 - 10000 = 60000
Tax would be required to be paid on capital gain ie. 70000
Last option is correct ie. D. $60,000, but you would have to pay taxes on $70,000.
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