In 2014, 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 2015. Beth's recognized gain from the installment sale in 2014 is:

Question

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The recognized gain in an installment sale is calculated as the gross profit percentage multiplied by the cash received in the year of sale. The gross profit percentage is calculated as the gross profit divided by the contract price (selling price plus any liabilities assumed by the buyer). In this case, the selling price is $400,000 and there are no liabilities assumed by the buyer, so the contract price is also $400,000. The gross profit is calculated as the selling price minus the basis, which is $400,000 - $300,000 = $100,000. The gross profit percentage is therefore $100,000/$400,000 = 25%.

In 2014, Beth received $100,000 in cash, so her recognized gain is $100,000 x 25% = $25,000. The remaining $300,000 (plus interest) is not included in her recognized gain until it is received in 2015.

In 2014, Beth Sold Equipment Used in Her Business