Charlotte sold her unincorporated business for $600,000 in 2012.The sales contract allocated $120,000 to equipment, $300,000 to land, and $180,000 to goodwill.Charlotte had a $0 basis in the goodwill, the land cost $150,000, and the equipment originally cost $250,000 but it was fully depreciated.What is the amount of the gain eligible for installment sales treatment?

Question

Quizplus · Accepted Answer

To determine the amount of gain eligible for installment sales treatment, we need to calculate the adjusted basis for each asset. The adjusted basis for the equipment is $0 because it was fully depreciated. The adjusted basis for the land is $150,000. The adjusted basis for the goodwill is also $0 because Charlotte had no basis in it.

The gain on the sale is the amount realized ($600,000) minus the adjusted basis ($0 + $150,000 + $0) = $450,000.

Since $180,000 of the sales price was allocated to goodwill, which has a zero basis, this amount of gain is not eligible for installment sales treatment. The remaining gain eligible for installment sales treatment is the total gain ($450,000) minus the amount allocated to goodwill ($180,000) = $270,000.

Therefore, the amount of gain eligible for installment sales treatment is $270,000, which means Option B is the correct answer.

Charlotte Sold Her Unincorporated Business for $600,000 in 2012