Sally purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400.The inflation rate between year 1 and year 2 was 50%.If the capital gains tax is 50%,what's Sally's after tax-real capital gain if the tax is on nominal gains? What is it if the tax is on real gains?

Question

Quizplus · Accepted Answer

Sally's nominal capital gain is $400 - $200 = $200. Her real capital gain is $200 / (1 + 0.50) = $100. If the tax is on nominal gains, Sally's after-tax real capital gain is $200 * (1 - 0.50) = $100. If the tax is on real gains, Sally's after-tax real capital gain is $100 * (1 - 0.50) = $50.

Sally Purchased One Share of Stryker Stock for $200 in Year