In 2015,Father sold land to Son for $50,000 cash and an installment note for $150,000 due in 2019.Father's basis was $100,000.In 2016,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 2016?

Question

Quizplus · Accepted Answer

Father's initial basis in the land was $100,000. When he sold it to his son for $50,000 cash and an installment note for $150,000, Father recognized a gain of $100,000 ($150,000 - $50,000 - $100,000 basis).

In 2016, Son sold the land for $300,000 cash. Because Son did not pay off the $150,000 installment note, Father is still owed $142,000 ($150,000 - $8,000 interest paid). Father must recognize gain on the unpaid amount of the note, which is $42,000 ($142,000 unpaid balance - $100,000 basis).

Therefore, Father's total recognized gain in 2016 is $75,000 ($100,000 initial gain - $42,000 gain on unpaid note balance). The correct answer is B).

In 2015,Father Sold Land to Son for $50,000 Cash and an Installment