Father sold land to Son for $500,000 in 2014.Father's basis in the land was $100,000.Son paid Father $50,000 and gave Father a note for $450,000 due in 2017.In 2015,Son sold the land for $600,000 cash.The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.

Question

Quizplus · Accepted Answer

When Son sells the land,Father is required to recognize the previously unreported installment sale gain.Father's installment gain ratio is 80% [($500,000 - $100,000)/$500,000].In 2015,Father is deemed to have collected the balance of the contract price,$450,000,and the gain recognized is $360,000 ($450,000 × .80).

Father Sold Land to Son for $500,000 in 2014