Father sold land to Son for $500,000 in 2019.Father's basis in the land was $100,000.Son paid Father $50,000 and gave Father a note for $450,000 due in 2022.In 2020, Son sold the land for $600,000 cash.The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.

Question

Quizplus · Accepted Answer

Father's gain on the sale is the selling price of $500,000 (the amount paid plus the note) minus his basis of $100,000, resulting in a gain of $400,000. Because Son sold the property in the following year for $600,000, it can be inferred that the fair market value of the property was higher than the sale price. Therefore, Father must recognize his entire gain in the year of the sale, which is 2020. The gain is reported as a long-term capital gain on Father's tax return, and is subject to a maximum federal capital gains tax rate of 20%.

Father Sold Land to Son for $500,000 in 2019