Question

joe invested in a piece of land seven years ago when real estate prices were rising in his area and land values were expected to double within five years. the land remained vacant and was only used in 20x0 when joe was approached by a businessman to rent the land for two weeks for a local carnival for a fee of $1,000. it is now 20x2 and joe has been offered a significant sum of money for his land in response to an advertisement he placed in a local newspaper. based on joe's primary intention for the land, the gain on the sale would be classified as question 14select one: a. exempt income. b. a capital gain. c. property income. d. business income.

Answer 1

Joe's gain on the sale of his land, initially bought as an investment with the expectation of value appreciation, would be classified as a capital gain.

Step-by-step explanation:

According to the provided scenario, Joe's primary intention for purchasing the land was investment, anticipating that the land values would double within five years. Despite a temporary use of the land for a local carnival, this does not appear to change his original intent of a long-term investment. Consequently, when Joe sells the land, the gain on the sale would most appropriately be classified as a capital gain, given that the property was held as an investment and not primarily for business or trade purposes.

In comparison, the examples provided illustrate various scenarios of property investment and valuation. Freda and Frank both experienced an increase in property values which, upon sale, would likely result in a capital gain assuming the properties were held for investment. These examples are representative of outcomes in real estate investment, where prices fluctuate, and ownership over time often leads to capital appreciation.