Dakota Martin sold a piece of land in 2020 for $350,000.The land was recognized as capital property.The original cost of the land was $75,000.The selling costs incurred in 2020 were $5,000.The terms of the payment included an immediate down payment of $50,000, with the remainder of the cost to be paid over the next three years in three equal payments.Dakota wishes to report the minimum taxable capital gain allowed each year.What is the taxable capital gain for 2020? (Round all amounts to zero decimal places.)

Question

Quizplus · Accepted Answer

In 2020, Dakota sold the land for $350,000 with immediate costs of $5,000, making the net sale proceeds $345,000. The original cost was $75,000, resulting in a capital gain of $270,000. Since only 50% of capital gains are taxable in many jurisdictions, the taxable capital gain is $135,000. However, because Dakota received only a $50,000 down payment in 2020 and will receive the rest over the next three years, they can choose to report a portion of the gain each year based on the amount received. For 2020, the portion of the total sale represented by the $50,000 down payment is $50,000 / $350,000 = 1/7th of the total sale. Therefore, 1/7th of the taxable gain ($135,000) is reported in 2020, which is $135,000 / 7 = $19,286, rounded to $19,000 for simplicity. However, since the calculation should be based on precise numbers and the correct rounding should be applied at the end of the calculation, the correct taxable gain for 2020 would be closer to the options provided. Given the options, the closest correct choice based on the scenario described would be to report a portion of the gain, but the exact calculation provided does not match the options exactly due to a rounding discrepancy in the explanation. The principle of reporting a portion of the gain in the year of the down payment is correct, but the specific numbers provided in the options require precise calculation based on the sale proceeds, costs, and the portion of the payment received. The correct approach involves calculating the portion of the capital gain attributable to the down payment received in 2020, but without the exact formula or method used in the options, the explanation points towards the concept of installment sale reporting.

Dakota Martin Sold a Piece of Land in 2020 for $350,000.The