Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

Question

Roland Butler

Business

29 June, 04:58

Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?

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Answers (1)

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Mara Cohen · Answer 1

Answer:1. The higher before tax real gain is for Steve for $2000 i. e (32,000 - 30,000) while Stephanie makes $1800 (6% of $30,000)

2. The higher after tax real gain is for Stephanie losing 35% of her income

which reduce her income to $1170 while Steve loss 50% of his income which reduce to $1000.

Explanation

The inflation rate is not considered in the calculation because it's constant for both parties.