Juan, not a dealer in real property, sold land that he owned.His adjusted basis in the land was $500,000 and it was encumbered by a mortgage for $200,000.The terms of the sale required the buyer to pay Juan $100,000 on the date of the sale.The buyer assumed Juan's mortgage and gave Juan a note for $600,000 (plus interest at the Federal rate) due in the following year.What is the gross profit percentage (gain ¸ contract price)?
A)300/900 = 33.3%.
B)400/700 = 57.14%.
C)400/600 = 66.67%.
D)500/900 = 55.55%.
E)None of the above.

Question

Quizplus · Accepted Answer

The gross profit is calculated as the selling price minus the adjusted basis. The selling price is $100,000 (cash) + $200,000 (mortgage assumed) + $600,000 (note) = $900,000. The gross profit is $900,000 - $500,000 = $400,000. The contract price is $700,000 ($100,000 cash + $600,000 note). Therefore, the gross profit percentage is $400,000 / $700,000 = 57.14%.

Juan, Not a Dealer in Real Property, Sold Land That