Pelosi Corporation sold a parcel of land valued at $300,000. Its basis in the land was$250,000. For the land, Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year. What is Pelosi's recognized gain in the current and subsequent year, respectively?

Question

Quizplus · Accepted Answer

Pelosi's recognized gain in the current year is the amount of cash received minus the basis in the land:
$150,000 - $250,000 = -$100,000
Since the result is negative, Pelosi has a loss in the current year and does not recognize any gain.

In the subsequent year, Pelosi receives the note valued at $150,000. This is treated as a payment on the sale of the land and triggers gain recognition based on the remaining gain:

Remaining gain = Selling price - Basis
Remaining gain = $300,000 - $250,000
Remaining gain = $50,000

Since Pelosi has not previously recognized any gain, the entire $50,000 is recognized in the subsequent year when Pelosi receives the note. Therefore, the recognized gain in the subsequent year is $50,000.

Pelosi Corporation Sold a Parcel of Land Valued at $300,000