Question

Jane owns land adjacent to her home that appreciated in value by $5,000 this year. She acquired the land five years ago for $25,000. Based on these facts alone, the amount that would be included in her taxable income for the current year is:

a. $30,000
b. $25,000
c. $5,000
d. $0

Answer 1

The amount that would be included in Jane's taxable income for the current year is $0 because the gain on her land is unrealized.

Step-by-step explanation:

Jane owns land adjacent to her home that appreciated in value by $5,000 this year. She acquired the land five years ago for $25,000. Based on these facts alone, the amount that would be included in her taxable income for the current year is $0. The appreciation in the value of the land is an unrealized gain because Jane has not sold the land. Only realized gains, those where the asset is sold for a profit, are subject to capital gains tax and thus included in taxable income. Unrealized gains are not taxed under U.S. tax law as the gain is only on paper until the asset is sold.