Question

Eight years ago you purchased an asset for $100,000 that has yielded a nominal capital gain of $30,000. If you sold the asset today, your inflation-adjusted capital gains would be zero due to inflation over the last eight years. The capital gains tax is 28 percent. If you sold the asset today your tax liability would be

Answer 1

Answer: $8,400

Explanation:

Tax liability for a year is computed on the nominal capital gain as of that year not the inflation-adjusted gain. As such, should the asset be sold today, the capital gains tax of 28% will be computed on the capital gain of $30,000 in the following manner;

= 28% * 30,000

= $8,400