Determine Amos’s gross income in each of the following cases: In the current year, Amos purchased an automobile for $25,000. As part of the transaction, Amos received a $1,500 rebate from the manufacturer. Amos sold his business. In addition to the selling price of the stock, he received $50,000 for a covenant not to compete—an agreement that he will not compete with his former business for five years. Amos owned some land he held as an investment. As a result of a change in the zoning rules, the property increased in value by $20,000.

c. The change in the zoning rules that caused the property to increase in value is economic gain but is not a realized gain for tax purposes. Amos's wealth increased, but the realization requirement is not satisfied because he did not receive any additional property, nor were any improvements made to his property. Amos will not realize this increase in wealth for tax purposes until he sells the property.

Explanation:

a. The $1,500 is a reduction in the cost of the automobile and is not income.

b. The $50,000 payment received under the covenant is included in Amos's gross income because the payment is an increase in wealth realized.

c. The change in the zoning rules that caused the property to increase in value is economic gain but is not a realized gain for tax purposes. Amos's wealth increased, but the realization requirement is not satisfied because he did not receive any additional property, nor were any improvements made to his property. Amos will not realize this increase in wealth for tax purposes until he sells the property.