For each of the following situations, indicate the amount of income, if any, that would be...

For each of the following situations, indicate the amount of income, if any, that would be taxable in the year 2020:

A. R found a box while jogging near her home. In the box was $100,000. R reported the find to the police, but because the owner could be found, R was allowed to keep the money.

B. W purchased 10 acres of land for $100,000. Shortly after the purchase it was discovered that oil was present beneath the ground. The value of the land immediately increased to $5,000,000.

C. E borrowed $50,000 from a bank using his home as collateral for the loan. The home was worth $900,000.

Solutions

Expert Solution

Observations on whether the amount of income, if any, is taxable in the year 2020:

A. R found a box while jogging near her home. In the box was $100,000. R reported the find to the police, but because the owner could be found, R was allowed to keep the money.

The entire $100,000 is taxable at the prevailing tax rates. The found money will be clubbed to the overall income of R for the year 2020.

B. W purchased 10 acres of land for $100,000. Shortly after the purchase it was discovered that oil was present beneath the ground. The value of the land immediately increased to $5,000,000.

The increase in value of the land is not taxable, unless W actually sells the land.

Any other income made by W, such as sale of oil, or rent from the land, will be taxable.

C. E borrowed $50,000 from a bank using his home as collateral for the loan. The home was worth $900,000.

A loan taken doesn't constitute income. Hence, this amount is not taxable for E.

Rahul Sunny answered 1 year ago

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