Father sold land to Son for $500,000 in 2018. Father's basis in the land was $100,000. Son paid Father $50,000 and gave Father a note for $450,000 due in 2021. In 2019, Son sold the land for $600,000 cash. The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.

Question

Quizplus · Accepted Answer

Under related party transactions, the installment method is not allowed, so the gain must be recognized in the year of sale. Therefore, Father must recognize a gain of $360,000 in 2019 ($500,000 - $100,000 - $40,000 (interest on note)).

Father Sold Land to Son for $500,000 in 2018