Question

J sold a diamond ring for $2,000 that she purchased for $800 many years earlier. She also sold a painting for $900 that she had purchased for her living room for $1,200. What amount is to be reported in net income for tax purposes?

Answer 1

To calculate net income for tax purposes from the sale of personal items, the student should combine the gain and loss from the sales of a diamond ring and a painting. The gain from the diamond ring is $1,200 and the loss from the painting is $300, resulting in a net income of $900.

Step-by-step explanation:

The student in question is dealing with a scenario that involves calculating net income for tax purposes based on the sale of personal items. For the diamond ring, she made a profit, since she sold it for $2,000 after purchasing it for $800. This results in a gain of $1,200. However, for the painting, there's a loss of $300, having sold it for $900 after purchasing it for $1,200. In determining the net income to be reported on her taxes, she would combine the gain and loss from both sales.

Net Income Calculation:
$1,200 (gain from the ring) - $300 (loss from the painting) = $900.

Therefore, the net income for tax purposes would be $900.