Mike sold the following assets during the current year: Which one of the following amounts represents his taxable capital gain, net of allowable capital losses, for tax purposes during the current year?

Question

Mike sold the following assets during the current year:  Which one of the following amounts represents his taxable capital gain, net of allowable capital losses, for tax purposes during the current year?

Quizplus · Accepted Answer

To calculate Mike's taxable capital gain, we need to find the total proceeds from the sales of his assets and subtract the ACB (adjusted cost base) of these assets as well as any allowable capital losses for the year.

Total proceeds = $10,000 + $5,000 + $8,000 = $23,000

ACB = $6,000 + $2,000 + $7,000 = $15,000

Net capital gain = total proceeds - ACB - allowable capital losses

From the information given, we don't know the exact amount of allowable capital losses that Mike has for the year. But we do know that it is less than or equal to $25.

So, the maximum net capital gain that Mike could have is:
$23,000 - $15,000 - $25 = $7,000

However, this is the maximum amount and it exceeds the given answer choices.

The only answer choice that is below $7,000 is C. To get to that amount, we can assume that Mike has allowable capital losses of $25, which gives us:
$23,000 - $15,000 - $25 = $7,000 
$7,000 - $6,350 (annual exemption) = $650, which is the taxable capital gain for the year.

Mike Sold the Following Assets During the Current Year