Question

On 1 July in the current income year, Cassie borrowed $100,000 and purchased a block of land for $120,000. Cassie intended to build a house suitable for herself, her partner and their children to live in. Soon after Cassie received an offer of $270,000 for the land. The sale, and settlement, took place in May of the same (current) income year. Cassie’s interest expense was $15,000. Assume there are no other costs associated with the purchase of the land.

Required B   

Advise Cassie whether there is a capital gain or loss as a result of the above transactions – and the amount of that gain or loss, if any.

In your response give reasons and refer to sections of legislation and cases, where relevant.

Answer 1

Particulars	Amount (in $)
Sale Consideration	270000
Less:
Cost of Acquisition	120000
Interest Expenses	15000
	135000
Capital Gains	135000

According to the US taxation laws, the time period for determining the long term capital gains is 1 year from the date of acquisition of asset. Long term Capital gains are generally taxed at the rate of 15% whereas short term capital gains are added to total income.

In this given case, Cassie sold asset within 1 year from the date of acquisition. Hence the Short term Capital gains is $ 135,000.