A cash basis taxpayer sold investment land in 2019 for $200,000.He received $40,000 in the year of sale and
$160,000 in 2020.The cost of the land was $80,000.Under the installment method, the taxpayer would report a
$24,000 gain in 2019.

Question

Quizplus · Accepted Answer

The installment method allows the taxpayer to recognize gain as they receive payments. In this case, the gain is calculated by taking the total amount received ($200,000) minus the cost of the investment ($80,000), which equals $120,000. To determine the gain recognized in 2019, we need to apply the percentage of the total payments received in 2019 to the total gain. In this case, the percentage is 20% ($40,000 received in 2019 divided by $200,000 total sales price). Multiplying $120,000 gain by 20% results in $24,000 gain recognized in 2019. This is in accordance with the requirements of the installment method.

A Cash Basis Taxpayer Sold Investment Land in 2019 for $200,000.He