Jasmine sold land for $250,000 in 2015. The land had a basis of $118,000 and she incurred selling expenses of $10,000. Jasmine received $50,000 down in 2015 and will receive five additional annual payments of $40,000 each. How much income will Jasmine recognize in 2016 when she receives the first additional payment of $40,000?

Question

Quizplus · Accepted Answer

Jasmine will report the gain on the sale of the land using the installment method since she will receive payments in more than one tax year. The gain on the sale is calculated as follows:

Sale price: $250,000
Basis: $118,000
Selling expenses: $10,000

= $122,000 gain on sale

To calculate the gross profit percentage, we divide the gain on sale by the sale price:

$122,000 / $250,000 = 0.488 or 48.8%

Now, we can calculate the gross profit percentage of each payment:

$40,000 x 48.8% = $19,520

Therefore, the income Jasmine will recognize in 2016 when she receives the first additional payment of $40,000 is $19,520 (Choice C).

Jasmine Sold Land for $250,000 in 2015