A cash basis taxpayer sold investment land in 2011.He received $40,000 in the year of sale and $120,000 in 2012.The cost of the land was $100,000.Under the installment method,the taxpayer would report a $15,000 gain in 2011.

Question

Quizplus · Accepted Answer

Under the installment method, the gain is reported as payments are received. The total gain is $60,000 ($160,000 - $100,000). The gross profit percentage is 37.5% ($60,000 gain / $160,000 total payments). In 2011, the taxpayer received $40,000, so the gain reported is $15,000 (37.5% of $40,000).

A Cash Basis Taxpayer Sold Investment Land in 2011