Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2018. Arnold will receive $200,000 annually, plus interest at 8%, from 2019 through 2021. Arnold will recognize no gross income on this sale in 2018. Which of the following determines this treatment?

Question

Quizplus · Accepted Answer

The Wherewithal-to-Pay Concept is the principle that determines this treatment. It suggests that income should be recognized when the taxpayer has the actual or constructive receipt of income, in a manner that aligns with their ability to pay the tax. Since Arnold will receive the payments over time, this concept allows for the recognition of income as it is received, rather than all at once at the time of sale, reflecting his ability to pay taxes on the income as it is actually received.

Arnold Sells a Parcel of Investment Real Estate to Oswald