Hal sold a rare automobile in 2012 for $110,000. Hal bought the automobile in 1988 for $25,000. Hal received $50,000 in 2012 and will receive $60,000 (plus interest) in 2013. Hal elects not to use the installment method for this sale. fte $60,000 note is worth $57,000 at the time of the sale. What gain (not including interest income) will Hal recognize in 2013 when he receives the $60,000?

Question

Quizplus · Accepted Answer

$2,380
Overall gain: $25,000 - $17,000 = $8,000
Contract price: $25,000
Gross proﬁt percentage: $8,000/$25,000 = 32% Long-term capital gain recognized in 2012: $6,000 × 32% = $1,920 Long-term capital gain recognized in 2013: $10,000 × 32% = $3,200
Unpaid balance of installment obligation: $25,000 - $16,000 ($6,000 + $10,000) = $9,000 Basis in installment obligation: $9,000 - ($9,000 × 32%) = $6,120
Gain on sale of installment obligation: $8,500 - $6,120 = $2,380 (long-term capital gain)

Hal Sold a Rare Automobile in 2012 for $110,000