In 2017, Beth sold equipment used in her business. Her basis in the property was $300,000 ($500,000 cost less $200,000 of depreciation). Beth sold the property for $400,000, with $100,000 due on the date of the sale and $300,000 (plus interest at the Federal rate) due in 2018. Beth's recognized gain from the installment sale in 2017 is:

Question

Quizplus · Accepted Answer

Beth has to recognize gain in the year of sale equal to the gross profit percentage of the sale, multiplied by the amount of payment received in that year.

Gross profit percentage = (Selling price - Basis) / Selling price
= ($400,000 - $300,000) / $400,000
= 0.25 or 25%

Amount of payment received in 2017 = $100,000

Recognized gain in 2017 = Gross profit percentage x Amount of payment received in 2017
= 0.25 x $100,000
= $25,000

Therefore, the recognized gain from the installment sale in 2017 is $25,000. However, since the question asks for the recognized gain, and not the amount of payment received, the answer is $100,000 (which is the gross profit from the sale) because that's the gain that Beth has to recognize on her tax return for 2017.

In 2017, Beth Sold Equipment Used in Her Business