Question

Identify the rule dictating that on sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale.

Answer 1

Answer: Return of capital principle.

Step-by-step explanation:

Return on Capital principle is a taxation principle that explains that there will be no tax on the portion of an investment that was the original investment cost on the investor.

The taxes will be on anything higher than this original cost because it would represent a capital gain. For instance, if you bought an asset for $4,000 and sold it for $5,000 a year later, you would only be taxed on $1,000 as this is the gain.