This year, Ms. Lucas sold investment land for $125,000 cash plus the purchaser's assumption of a $50,000 mortgage on the land. Ms. Lucas's tax basis in the land was $93,000. If any recognized gain is taxed at 15 percent, compute the after-tax cash flow from the sale.

Question

Quizplus · Accepted Answer

The total amount realized from the sale is $125,000 (cash) + $50,000 (mortgage assumed) = $175,000. The gain is $175,000 - $93,000 (basis) = $82,000. The tax on the gain is $82,000 * 15% = $12,300. The after-tax cash flow is $125,000 (cash received) - $12,300 (tax) = $112,700.

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