Calculate the capital gains taxation effects of this sale

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Question - Mr. Rhodes purchased a large tract of land on the edge of Edmonton in 1993 for $750,000. It was sold during April, 2018 to a developer for $2,500,000. He receives a down payment of $625,000 (25%) and accepts a 25 year, 8 percent mortgage for the balance of $1,875,000. The payments on this mortgage begin in the second year and require the repayment of $75,000 per year in capital.

Mr. Rhodes wishes to use reserves to defer the payment of taxes on capital gains for as long as possible. He classifies any gain on the land sale as a capital gain.

Required - Calculate the capital gains taxation effects of this sale, assuming that Mr. Rhodes deducts the maximum capital gains reserve in 2018 and subsequent years.

Reference no: EM132464085

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