Charlotte sold her unincorporated business for $600,000 in 2018. The sales contract allocated $120,000 to equipment, $300,000 to land, and $180,000 to goodwill. Charlotte had a $0 basis in the goodwill, the land cost $150,000, and the equipment originally cost $250,000 but it was fully depreciated. What is the amount of the gain eligible for installment sales treatment?

Question

Quizplus · Accepted Answer

The amount of gain eligible for installment sales treatment is based on the adjusted basis of each asset sold. Since the equipment had a $0 basis due to being fully depreciated, the entire $120,000 allocated to it is eligible for installment sales treatment. For the land, the basis is $150,000, so the amount eligible for installment sales treatment is $150,000 out of the $300,000 allocated to it. For the goodwill, the basis is $0, so the entire $180,000 allocated to it is ineligible for installment sales treatment. Therefore, the total amount of gain eligible for installment sales treatment is $120,000 + $150,000 = $270,000.

Charlotte Sold Her Unincorporated Business for $600,000 in 2018