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  • LTCG 5th Year 10th Year Sale Consideration: Without Indexation

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    Anushree Pareek
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    1) The document compares the net gain from selling an asset after 5 and 10 years without indexation versus with indexation. 2) Without indexation, the net gain after tax in the 5th year is $3.2 million and in the 10th year is $8.8 million. With indexation, the net gain after tax in the 5th year is $271,885 and in the 10th year is $2.3 million. 3) Indexation reduces the capital gains tax liability by accounting for inflation, resulting in lower net gains compared to without indexation.

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    PRM 41_SEC D_D4_Extra question

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    1) The document compares the net gain from selling an asset after 5 and 10 years without indexation versus with indexation. 2) Without indexation, the net gain after tax in the 5th year is $3.2 million and in the 10th year is $8.8 million. With indexation, the net gain after tax in the 5th year is $271,885 and in the 10th year is $2.3 million. 3) Indexation reduces the capital gains tax liability by accounting for inflation, resulting in lower net gains compared to without indexation.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    20 views3 pages

    LTCG 5th Year 10th Year Sale Consideration: Without Indexation

    Uploaded by

    Anushree Pareek
    1) The document compares the net gain from selling an asset after 5 and 10 years without indexation versus with indexation. 2) Without indexation, the net gain after tax in the 5th year is $3.2 million and in the 10th year is $8.8 million. With indexation, the net gain after tax in the 5th year is $271,885 and in the 10th year is $2.3 million. 3) Indexation reduces the capital gains tax liability by accounting for inflation, resulting in lower net gains compared to without indexation.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 3

    Without Indexation

    LTCG 5th year 10th year

    Sale consideration
    Selling Price $17,531,896.63 $24,589,391.97

    Cost of Acquisition
    Cost Price 12500000 12500000
    Expenses(+) 1000000 1000000
    13500000 13500000

    Net gain (loss) $4,031,896.63 $11,089,391.97


    LTCG tax $806,379.33 $2,217,878.39
    Net gain (loss) after tax $3,225,517.30 $8,871,513.58
    Opportunity cost(-) $875,000.00 $1,750,000.00
    Overall Net gain (loss) $2,350,517.30 $7,121,513.58
    With Indexation
    LTCG 5th year 10th year

    Sale consideration
    Selling Price $17,531,896.63 $24,589,391.97

    Cost of Acquisition
    Cost Price 12500000 12500000
    Expenses(+) 1000000 1000000
    13500000 13500000

    Indexed COA
    Cost of Acquisition 13500000 13500000
    Inflation Cost(+) $17,229,801.09 $21,990,077.46
    Net gain (loss) $302,095.54 $2,599,314.51
    LTCG tax $30,209.55 $259,931.45

    Net gain (loss) after tax $271,885.99 $2,339,383.06


    Opportunity cost(-) $966,985.47 $2,201,131.19
    Overall Net gain (loss) ($695,099.48) $138,251.87
    For 5th year
    Inflation cost =FV(0.05,5,0,13500000)
    Opportunity cost =FV(0.05,5,-175000,0,0)
    For 10th year
    Inflation cost =FV(0.05,10,0,1300000)
    Opportunity cost =FV(0.05,10,-175000,0,0)

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