Tim sells land to Brad for $75,000.Tim originally purchased the land for $50,000.Brad agrees to pay Tim five annual installments of $15,000 each.In year three,Brad makes his third installment of $15,000.How much taxable gain will Tim have in year three?

Question

Quizplus · Accepted Answer

Tim's total gain is $25,000 ($75,000 - $50,000). The gain is recognized proportionally as payments are received. Each installment is $15,000, and the gain percentage is 33.33% ($25,000 gain / $75,000 total payments). In year three, the taxable gain is $5,000 (33.33% of $15,000).

Tim Sells Land to Brad for $75,000