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# A person claiming profits from the sale of a house must pay taxes on a

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Math Expert
Joined: 02 Sep 2009
Posts: 47880
A person claiming profits from the sale of a house must pay taxes on a  [#permalink]

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21 Jan 2018, 03:45
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Difficulty:

95% (hard)

Question Stats:

44% (02:27) correct 56% (02:24) wrong based on 90 sessions

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A person claiming profits from the sale of a house must pay taxes on all profit based on the difference in the purchase price and the selling price. Profit up to and including 20% of the purchase price are taxed at a rate of 6%, while all profits beyond 20% of the purchase price are taxed at 10%. If Family G sold their house for $228,000 and they purchased the house 15 years ago for$164,000, how much do they have to pay in taxes?

A. $6400 B.$5888
C. $4438 D.$3120
E. $1968 _________________ Manager Joined: 23 Feb 2017 Posts: 59 Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] ### Show Tags 21 Jan 2018, 05:37 Purchase Price = 164,000 Selling price = 228,000 Profit = S.P. - C.P. = 64,000 Tax @20% of PP = 32800 @ 6% = 1968 Tax above 20 % of PP = 64000-38200 = 31200 @ 10% = 3120 Total tax = 1968+3120 = 5088 Bunuel can you please confirm the answer. _________________ +1 Kudos if you find it helpful. Board of Directors Status: QA & VA Forum Moderator Joined: 11 Jun 2011 Posts: 3740 Location: India GPA: 3.5 WE: Business Development (Commercial Banking) Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] ### Show Tags 21 Jan 2018, 08:23 Bunuel wrote: A person claiming profits from the sale of a house must pay taxes on all profit based on the difference in the purchase price and the selling price. Profit up to and including 20% of the purchase price are taxed at a rate of 6%, while all profits beyond 20% of the purchase price are taxed at 10%. If Family G sold their house for$228,000 and they purchased the house 15 years ago for $164,000, how much do they have to pay in taxes? A.$6400
B. $5888 C.$4438
D. $3120 E.$1968

Profit Earned is 64000

% Profit earned by the transaction is $$\frac{( 228,000 - 164,000 )}{164,000}*100$$ = 39.02 %

Tax Upto 20% of Profit is 20%*64000*6% = 768
Tax Above 20% of Profit is 80%*64000*10% = 5120

So, Total Tax is 5888 , answer will be (B)

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Senior Manager
Joined: 24 Jun 2012
Posts: 343
Location: Pakistan
Concentration: Strategy, International Business
GPA: 3.76
Re: A person claiming profits from the sale of a house must pay taxes on a  [#permalink]

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22 Jan 2018, 23:03
the profit earned is 64000. Now 20% of this profit will be 12800
taking 6% of 12800 will be 768----1)
Now beyond 20% of 12800 means 80% of 128000.
We will get 0.8 of 128000 as 51200. This amount 51200 is taxed at 10%
0.1 of 51200 = 5120---2)
adding 1 and 2
768+ 5120 = 5888
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Joined: 22 Mar 2017
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GMAT 1: 680 Q48 V35
A person claiming profits from the sale of a house must pay taxes on a  [#permalink]

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29 Jan 2018, 08:22
1
mandeey wrote:
Purchase Price = 164,000
Selling price = 228,000

Profit = S.P. - C.P. = 64,000

Tax @20% of PP = 32800 @ 6% = 1968
Tax above 20 % of PP = 64000-38200 = 31200 @ 10% = 3120
Total tax = 1968+3120 = 5088

Bunuel can you please confirm the answer.

I got right the same result (5088 rather than 5888), and this is because we take for granted that the part for which 6% of tax is paid is the amount of the profit that stands for the 20% (including) of the purchase price and the rest (64,000 - 38,200) will be tax at 10%.

Bunuel, can you please confirm whether this is right? Or otherwise, explain us why we are mistaken, because the line "Profit up to and including 20% of the purchase price are taxed at a rate of 6%" clearly expresses that te 20% is taken from the purchase price.

Thanks!

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If it helped, some kudos would be more than welcome!

King regards,

Rooigle

Intern
Joined: 01 Jan 2018
Posts: 44
Re: A person claiming profits from the sale of a house must pay taxes on a  [#permalink]

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08 Jun 2018, 01:05
More than a math question, this feels like a sentence correction question to me :D The first line it clearly says 'from the sale of a house must pay taxes on all profit'. So I assume tax is to be calculated on the profit. And then it says '20% of the purchase price are taxed at a rate of 6%' . Which I fell for and calculated 20% on the purchase price than on the profit.
Re: A person claiming profits from the sale of a house must pay taxes on a &nbs [#permalink] 08 Jun 2018, 01:05
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