“Property Transactions: Capital Gains and Losses”

Vincent pays $20,000 for equipment to use in his trade or business. He pays sales tax of $800 as a result of the purchase. Must the $800 tax be capitalized as part of the purchase price?

Vincent’s friend tells him that capital gains tax is discriminatory in that it is imposed upon individuals who can afford to buy capital assets. Do you agree or disagree? Why? Why not? Be sure to include definitions of capital asset and capital gain in your response.

Can you make response each posted below. # 1 to 3?

1. Rebecca Willis posted May 19, 2018 1:05 PM

The $800 sales tax should be capitalized as part of the purchase price of equipment, since the price of the equipment is already included with the sales tax amount.

Capital assets are assets which give long-term benefits.

Capital gain arises if capital assets are sold at above the purchase price.

I can see both sides of Vincent’s friends’ opinion. However, relaxation of capital-gain tax has been done for lower-tax brackets people not higher tax-bracket people. Almost everything you own is a capital asset, such as a home and your car.

2. Alexandra Moraitis posted May 19, 2018 12:56 PM

So start off the post lets talk about capital asset can be a home, car, investment properties, stocks, bonds and even collectibles. On a business aspect is a type of asset that is used longer than a year and is not intended for sale. The IRS considers a business purchases as a capital expense. When individuals own any types of assets it is consider a capital asset. When a individual sells a stock, investment property of another capital asset and earn money on a sale they made capital gain. The IRS requires them to report capital gain and levies capital tax on these earnings. In 2017 the IRS allows filer to exclude up to 250,000 in capital gain on their primary residence. Married couples were excluded up to 500,000. For my opinion I do not believe that capital gain tax is discriminatory in that is it imposed upon individuals who can afford to buy capital assets. The tax is calculated on the positive difference between the sale price and the original purchase price of the asset. Capital gain taxes apply to anyone who sells on asset for profit expect day trader who buy and sell assets for a living but in that case profit are taxed as a business income.

https://www.investopedia.com/terms/c/capital_gains_tax.asp

https://www.investopedia.com/terms/c/capitalasset.asp

3. Daniel Gervais posted May 19, 2018 10:18 AM

Good morning team!

Yes, the $800 tax must be capitalized. If Vincent also had to pay for delivery, installation, those costs would be capitalized as well, and will be included in the cost basis of the asset. The basis will be important if/when he sells the equipment to determine in gain/loss on the asset.

Capital gains tax is imposed when a capital asset is sold or exchanged. A capital assets are owned for trade or personal use and include homes, stocks/bonds, equipment, etc. I don’t agree with Vincent’s friend that capital gains tax is discriminatory because only those who afford to buy capital assets are taxed. Reasons being, there are often offsetting tax benefits for some of these purchases, especially as it relates to interest deductions. Additionally, these assets are typically purchased to generate wealth, and there are many government services in place to regulate those industries (stocks, commercial buildings, rental properties, etc.), and revenue is needed to help fund those activities.