Wendy sold property on the installment basis in 2010 for more than her basis in the property.Wendy was to receive installment payments at the end of each year for the next five years.In 2011,before she collected on the installment obligation for that year,Wendy gave to her daughter (Wilma)the installment obligation so that she could collect the four remaining installments.

Question

Quizplus · Accepted Answer

According to the rules of installment sales, the seller recognizes gain in the year of sale only to the extent of the payment received in that year. Since Wendy sold the property on the installment basis, she had certain income recognition requirements. When Wendy transferred the installment obligation to her daughter Wilma, Wendy is treated as transferring the right to receive future income from the sale of the property. Wendy is still responsible for reporting the entire gain in the year of sale. Therefore, Wendy must recognize the remaining installment sale gain in 2011, and Wilma will not need to recognize any gain from collecting on the installment obligation.

Wendy Sold Property on the Installment Basis in 2010 for More