In 2018, Beth sold equipment used in her business. Her basis in the property was $300,000 ($500,000 cost less $200,000 of depreciation). Beth sold the property for $400,000, with $100,000 due on the date of the sale and $300,000 (plus interest at the Federal rate) due in 2019. Beth's recognized gain from the installment sale in 2018 is:

Question

Quizplus · Accepted Answer

Beth's recognized gain from the installment sale in 2018 is equal to the gross profit percentage (the gain on the sale divided by the total contract price) times the amount received in 2018.

The gain on the sale is the selling price of $400,000 minus the adjusted basis of $300,000, or $100,000. The total contract price is $400,000 plus the $300,000 due in 2019, or $700,000.

Therefore, the gross profit percentage is $100,000/$700,000, or 14.29%. The amount received in 2018 is $100,000, so Beth's recognized gain for 2018 is 14.29% of $100,000, or $14,290. However, since Beth's basis is less than the gross profit, she must recognize the entire $100,000 gain in 2018. Therefore, the correct answer is $100,000.

In 2018, Beth Sold Equipment Used in Her Business