Question

Ivan invests in land, The land appreciates by $8,000 each year. What is the tax treatment or consequence?

a) Taxable income
b) Capital gain
c) Tax-exempt income
d) Ordinary income

Answer 1

The appreciation of land by $8,000 each year is typically considered a capital gain, but is not taxed until the land is sold at a profit.

Step-by-step explanation:

When Ivan invests in land that appreciates by $8,000 each year, the tax treatment or consequence of this appreciation is generally considered a capital gain. A capital gain is a profit from the sale of property or an investment. However, the increase in value alone does not trigger a tax consequence. Taxes on the appreciation of the land are typically only realized when Ivan sells the land at a gain, meaning when he actually receives the profit from the increased value. If he simply holds onto the land and it appreciates, there's an unrealized capital gain, and no tax is due until the sale. It's also important to distinguish that capital gains are usually taxed at different rates compared to ordinary income.