Answer:
The nature of recognized gain or loss from the transaction is known as capital gain or loss and is significant for computation of individual income taxes.
Step-by-step explanation:
In this case, Jasmine has sold real estate property to her tenant. The gain or loss on sale of real estate is computed as below.
Original Cost 400,000
Depreciation 178,000
Current Value of Property 222,000
Sale Value 210,000
Loss on sale 12,000
Thus the loss on sale is computed by taking the present value of property into consideration and sale value. Since sale value is lower than current value of property, we have to recognize loss on sale of property which is called as capital loss.
Capital gain or loss is incurred when an individual sells capital assets like long-term investments, real estate etc. These capital gain/loss have to be disclosed in the personal income tax returns filed with the government and based on whether the transaction has resulted in a gain or loss, it becomes taxable. Capital gains are normally taxed as per personal income tax rates. Capital losses can be off-set against capital gains or in case there has been no capital gain, it can be carried forward to the next year for set-off against gains until the losses are exhausted.