Under those market conditions, the investment is most likely to realize a substantial capital gain.

• A. Decrease in rental income
• B. Substantial capital gain
• C. Tax evasion penalties
• D. Increase in maintenance costs

Answer: (B)

Capital gains come from selling an asset for more than its cost basis. When market conditions are favorable—demand rises, property values increase, and financing is accessible—the asset’s price tends to appreciate. That makes selling the investment at a price well above the purchase cost more likely, producing a substantial capital gain when you exit. The other factors—lower rental income, higher maintenance costs, or penalties—affect cash flow or costs and don’t by themselves create a larger sale price, whereas favorable market conditions push prices up and enable a large gain.