In 2019, Father sold land to Son for $50,000 cash and an installment note for $150,000 due in 2023.Father's basis was $100,000.In 2020, after paying $8,000 interest but nothing on the principal, Son sold the land for $300,000 cash.What gain, if any, must Father recognize in 2020?

Question

Quizplus · Accepted Answer

Father must recognize a gain of $75,000 in 2020. This is calculated based on the initial sale of the land to the Son. The total sale price was $200,000 ($50,000 cash + $150,000 note), and Father's basis in the land was $100,000. The gain on the sale is the difference between the sale price and the basis, which is $100,000. However, since the question asks about the gain Father must recognize in 2020, and considering the installment sale rules, Father recognizes gain as payments are received. In 2020, no principal payments were made on the note; thus, Father does not recognize any additional gain related to the installment note in 2020. The initial recognition of gain would have occurred in 2019 when the sale took place, not in 2020. Therefore, the correct answer reflects a misunderstanding of the question's specifics regarding the timing of gain recognition.

In 2019, Father Sold Land to Son for $50,000 Cash