Charlotte sold her unincorporated business for $500,000 in 2011.The sales contract allocated $150,000 to equipment,$300,000 to land,and $50,000 to goodwill.Charlotte had a $0 basis in the goodwill,the land cost $140,000,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

The gain eligible for installment sales treatment is determined by subtracting the adjusted basis of the property sold from the selling price, and then multiplying the result by the percentage of the selling price representing installment payments received in the year of sale. 
The adjusted basis of the equipment is $0 because it was fully depreciated, so its sale generates the entire $150,000 allocation to equipment as gain. The adjusted basis of the land is $140,000, so its sale generates $160,000 ($300,000 - $140,000) as gain. The goodwill sale generates its entire allocated amount of $50,000 as gain since its bases were $0. 
Therefore, the total gain eligible for installment sales treatment is $210,000 ($150,000 + $160,000 + $0 + $50,000), which corresponds to the portion sold under an installment sale.

Charlotte Sold Her Unincorporated Business for $500,000 in 2011