Question

Ivan invests in land, and Grace invests in taxable bonds. The land appreciates by $8,000 each year, and the bonds earn interest of $8,000 each year. After holding the land and bonds for five years, Ivan and Grace sell them. There is a $40,000 realized gain on the sale of the land and no realized gain or loss on the sale of the bonds. Are the tax consequences to Ivan and Grace the same for each of the five years? Explain.

Answer 1

Answer: No. The tax consequences to Ivan and Grace isn't the same for each of the five years.

Step-by-step explanation:

We should note that the taxes on the land will be charged on the interest when the land is sold and a gain is made.

For the bond, there'll be a tax in the interest income for every fiscal period usually a year but there will not be a tax on the bond's final sale due to the fact that no gain was received on its sale

Therefore, based on the information given above, tax consequences to Ivan and Grace isn't the same for each of the five years.