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If the CPI was used to convert nominal capital gains to real capital gains, what effect...

If the CPI was used to convert nominal capital gains to real capital gains, what effect would you expect on the taxes gathered by the sale of an asset with a long-term capital gain? Hint: Consider an LTCG with a 1-year holding period versus an LTCG with a 10-year holding period where the LTCG tax rate is the same for either.

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Answer #1

Assuming same LTCG rate and noninal capital gains

Inflationary period: As the holding period increases, real capital gains would decrease. Hence, the longer you hold the asset the lesser is the tax on capital gains.

Deflationary period: The longer you hold the asset the more is the tax on capital gains

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