How is the capital gain calculated?

The calculation of capital gain involves determining the profit made from selling an asset. This is done by taking the selling price of the asset and subtracting both the original purchase price and any allowable costs associated with the acquisition or disposal of the asset.

The correct approach is to subtract the purchase price from the selling price, and then also deduct any allowable costs. Allowable costs may include expenses directly related to the acquisition and disposal of the asset, such as transaction fees, legal costs, and improvement expenses, but they do not include general expenses which are unrelated to the sale of the asset.

This method provides a clear and accurate depiction of the profit made on the investment, which is crucial for tax purposes, as capital gains tax is often calculated on the profit rather than the total sale amount.

Other options might present variations that do not conform to accepted principles for calculating capital gains, such as including irrelevant costs or misrepresenting the components of the calculation, which could lead to an inaccurate determination of taxable income.