On September 2, of this year, Keshawn sold land to Rex, his nephew, for $400,000. Keshawn's basis in the land was $100,000. Rex agreed to pay his uncle $40,000 this year, and $60,000 each year for the next six years plus interest. One month later, Rex sold the land to Theo, an unrelated party, for $450,000. Based on this information, Keshawn must report

Question

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Keshawn sold the land using an installment sale method, where he receives payments over time. He reports a portion of the gain each year as he receives payments. The gain is calculated based on the gross profit percentage, which is the gain ($300,000) divided by the contract price ($400,000), resulting in 75%. Therefore, Keshawn reports 75% of the $40,000 received this year as gain, which is $30,000, and 75% of the $60,000 received in each of the following six years, which is $45,000 per year.

On September 2, of This Year, Keshawn Sold Land to Rex