Question

Suppose the capital gains tax is 28 percent and you purchased a house ten years ago for​ $80,000. If you sold the house today you would get​ $140,000. Your tax liability would be

Answer 1

Answer:

$0

Explanation:

The IRS has established a Section 121 exclusion that provides a $250,000 exclusion to single tax filers and $500,000 exclusion to married tax filers for the capital gains resulting from the sale of their main residence. In order to qualify for this exclusion you must pass the ownership and use test ⇒ this you must have owned and used the house as your home for at least 2 of the 5 years prior to the date of sale.

In this case, since the owner purchased the house 10 years ago and I assume lived in it, he should pay no capital gains taxes since the total gain is $60,000 and even if he/she was a single filer the section 121 exclusion is much higher.

Answer 2

Answer:

Tax Liability will be $16,800

Explanation:

House purchase price = $80,000.

House selling price = $1,40,000.

Capital gain is calculated by subtracting the purchase price from the selling price.

Capital Gain = $140,000 - $80,000

Capital gain = $60,000

Capital Gain Tax rate = 28%

Capital Gain Tax Amount = Capital Gain x tax rate

Capital Gain Tax Amount = $60,000 x 28%

Capital Gain Tax Amount = $16,800