If FFA farm sold its farmland for its estimated market value on 1/1/2010, how much capital gain would be taxed?

If FFA farm sold its farmland for its estimated market value on 1/1/2010, how much capital gain would be taxed?

• A. 128,000
• B. 528,000
• C. 1,128,000
• D. 2,000,000

Answer: (B)

The amount taxed as a capital gain comes from the difference between what you sold the farmland for and your basis in the property. When you sell for its estimated market value on a specific date, the selling price used is that market value, and the gain equals selling price minus the adjusted basis (original cost plus any improvements minus depreciation, if any). In this scenario, if the land sells for 2,000,000 and its adjusted basis is 1,472,000, the capital gain is 528,000. That 528,000 is the amount subject to capital gains tax, with the actual tax bill depending on the applicable long-term capital gains rate for the seller. The other figures would require different sale prices or different basis amounts, which aren’t indicated in this setup.

The amount taxed as a capital gain comes from the difference between what you sold the farmland for and your basis in the property. When you sell for its estimated market value on a specific date, the selling price used is that market value, and the gain equals selling price minus the adjusted basis (original cost plus any improvements minus depreciation, if any). In this scenario, if the land sells for 2,000,000 and its adjusted basis is 1,472,000, the capital gain is 528,000. That 528,000 is the amount subject to capital gains tax, with the actual tax bill depending on the applicable long-term capital gains rate for the seller. The other figures would require different sale prices or different basis amounts, which aren’t indicated in this setup.