A real estate developer purchases land for $500,000, constructs a building for $1,200,000, and sells the completed project for $2,100,000. Assuming this is considered business income rather than capital gains, what amount is subject to income tax?
Correct Answer
B) $400,000
When real estate development is considered business income, the entire profit ($2,100,000 - $500,000 - $1,200,000 = $400,000) is fully taxable as business income, not as capital gains. This classification depends on factors such as the developer's intention, frequency of transactions, and nature of the business.
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