PSI Oklahoma Real Estate Practice Test

How is capital gain calculated in a real estate sale?

1. Sale price minus closing costs

2. Total sale price minus the cost of improvements

3. Sale price minus the purchase price and closing costs

4. Sale price minus purchase price and the amount spent on improvements

The correct answer is: Sale price minus purchase price and the amount spent on improvements

Capital gain in a real estate sale is calculated by determining the difference between what you sell the property for and what you invested in it. More specifically, the capital gain is found by taking the sale price and subtracting the purchase price, as well as any costs associated with improvements made to the property during ownership. This approach considers not only what you initially paid for the property but also recognizes the value added through improvements, which can significantly affect the overall gain. By including the amount spent on improvements, the calculation accurately reflects the net profit from the investment. In contrast, other options may leave out important elements such as the purchase price or improvements, leading to an inaccurate representation of the true gain from the sale.