Juan,not a dealer in real property,sold land that he owned.His adjusted basis in the land was $700,000 and it was encumbered by a mortgage for $100,000.The terms of the sale required the buyer to pay Juan $200,000 on the date of the sale.The buyer assumed Juan's mortgage and gave Juan a note for $900,000 (plus interest at the Federal rate)due in the following year.What is the gross profit percentage (gain ÷ contract price)?
A)$700/$1,100 = 63.64%.
B)$500/$1,200 = 41.67%.
C)$700/$1,200 = 58.33%.
D)$500/$1,100 = 45.45%.
E)None of these.

Question

Quizplus · Accepted Answer

The gross profit percentage is the gain divided by the contract price.The contract price is the selling price less the seller's obligations assumed by the buyer.The selling price is the total consideration received by the buyer,exclusive of interest.Juan's selling price is $1,200,000 ($100,000 mortgage assumed plus the $200,000 cash received plus the $900,000 buyer's note).Juan's gross profit is $500,000 ($1,200,000 - $700,000 basis).The contract price is $1,100,000 ($1,200,000 selling price - $100,000 mortgage assumed by the buyer).Therefore,the gross profit percentage is $500,000/$1,100,000 = 45.45%.

Juan,not a Dealer in Real Property,sold Land That He Owned