Willie Is the Owner of Vacant Land That He Purchased

question 106

Essay

Willie is the owner of vacant land that he purchased in 2011 for $1,400,000 and held for investment.On January 22,2014,he was paid $145,000 for a thirteen-month option on the land by Susan.Susan could buy the land for an additional $1,200,000 by exercising the option.Susan had hoped to build a luxury home on the land,but was unable to get approval to build a big enough home to satisfy her needs.Consequently,Susan did not exercise her option and the option expired on February 22,2015.(1) What is Willie's basis,gain or loss,and type of gain or loss from these events? (2) What is Susan's basis,gain or loss,and type of gain or loss from these events?

Know the structure of the U.S. income tax system and its implications for personal finance.

Recognize the importance of inflation and taxation on savings and retirement planning.

Analyze retirement savings strategies, including asset allocation in tax-sheltered accounts.

Understand the mechanics and benefits of saving for higher education and retirement through specific tax-advantaged accounts.

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Definitions:

Personal Exemption Rate

A tax deduction that a taxpayer is entitled to claim for themselves and any dependents, reducing the taxable income.

Capital Gains Tax

A tax on the profit realized from the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale.

Marginal Tax Rate

The percentage of tax applied to your next dollar of income, reflecting the tax bracket into which the last dollar of taxable income falls.

Corporate Tax System

The structure by which businesses are taxed by the government on their profits, incorporating varying rates and regulations depending on the country or jurisdiction.