In 2017, Father sold land to Son for $50,000 cash and an installment note for $150,000 due in 2021. Father's basis was $100,000. In 2018, 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 2018?

Question

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Father's basis in the installment note is $100,000. In 2018, Son sold the land for $300,000 cash. Father must recognize a gain of $200,000 ($300,000 - $100,000). However, because the installment note was sold for more than its face amount, Father must also recognize an additional gain of $50,000 ($150,000 - $100,000). Therefore, Father's total gain in 2018 is $250,000.

In 2017, Father Sold Land to Son for $50,000 Cash