In 2011,Father sold land to Son for $150,000 cash and an installment note for $450,000 due in 2015.Father's basis was $240,000.In 2012,after paying $27,000 interest but nothing on the principal,Son sold the land for $600,000 cash.As a result of the second disposition,what gain must Father recognize in 2012?

Question

Quizplus · Accepted Answer

Father's basis in the land was $240,000, and he received $150,000 in cash and a note for $450,000, which brought the total sale price to $600,000. Thus, his gain on the sale was $360,000 ($600,000 - $240,000). Since Son did not pay any principal on the note in 2012, this does not affect Father's gain. Therefore, Father must recognize a gain of $360,000 in 2012.

In 2011,Father Sold Land to Son for $150,000 Cash and an Installment