Final answer:
Jacob has a potential tax gain of $10,000 from the condemnation sale over the original cost of the land. At a 10% tax rate, this results in a nominal tax liability of $1,000. However, his tax may be deferred to $0 if reinvestment in like-kind property is considered under tax deferral rules.
Step-by-step explanation:
The question is asking about Jacob's tax liability after his land has been condemned and he purchases new land. The cost of the condemned land was $150,000 and Jacob was paid $160,000 by the state. He then reinvests this amount into new land worth the same value, $160,000. Considering a tax rate of 10%, the gain Jacob has to consider for tax purposes is the difference between what the state paid him for his condemned land and the cost of that land.
Jacob's gain from the condemnation is the difference between the amount he was paid and the cost of the land:
Gain = Sale Price - Cost of the Land
Gain = $160,000 - $150,000
Gain = $10,000
Jacob's tax on the gain would then be 10% of $10,000:
Tax = Gain x Tax Rate
Tax = $10,000 x 10%
Tax = $1,000
However, since Jacob reinvested the entire amount received, including the gain, into new property, depending on the tax laws, he might be eligible for a tax deferral on condemnation proceeds reinvested in like-kind property, which might reduce his tax liability to $0.