When there is a disposition of a capital asset and not all of the proceeds of disposition are collected at the time of disposition, a reserve can be deducted. In the year of the disposition, the reserve cannot be less than 80 percent of the total gain.

Question

Quizplus · Accepted Answer

A reserve can indeed be deducted when not all proceeds from the disposition of a capital asset are collected at the time of disposition, but the statement about the reserve not being less than 80 percent of the total gain in the year of disposition is incorrect. The actual amount of the reserve that can be claimed is determined by specific formulas in the tax legislation, which consider the amount of proceeds not yet received and the number of years over which the proceeds are to be received, rather than a fixed percentage of the total gain.

When There Is a Disposition of a Capital Asset and Not