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

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Bunuel
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A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   21 Jan 2018, 03:45
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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
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B
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mandeey
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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   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.
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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   21 Jan 2018, 08:23
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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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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   22 Jan 2018, 23:03
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Answer is B
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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A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   29 Jan 2018, 08:22
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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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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   08 Jun 2018, 01:05
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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.
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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink] New post   06 Jan 2022, 08:12
This is a very poorly written question considering the stipulated answer.

In fact, the question would need to be rewritten as "20% of the profits are taxed at 6%, with the remaining profits taxed at 10%" for the given answer to be correct.

As written, 20% of the purchase price means just that.

I would ignore this question.

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Re: A person claiming profits from the sale of a house must pay taxes on a [#permalink]
06 Jan 2022, 08:12
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