installment_sale_solution - Solution: Installment sales...

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Solution : Installment sales method Gina, an accrual basis taxpayer, sells equipment of $200,000. The equipment had originally cost $70,000 and $10,000 of MACRS cost recovery has been deducted before the sale. The buyer assumes the existing mortgage of $50,000, pays $10,000 down, and agrees to pay $10,000 per year for 14 years plus interest at 8% on the unpaid balance. Interest and principal payments are due at the beginning of the year starting in year 2. Selling expenses are $13,000. Required: 1. Compute the gain recognized in year 1. 2. Compute the gain recognized in subsequent years. 3. Assume that Gina is unable to collect the final $10,000 installment because the buyer declares bankruptcy. What would Gina report on her tax return? Part 1: Step 1: Compute the gross profit from the sale. Selling price Down payment 10,000 Mortgage assumed by buyer 50,000 Installment payments (14 x $10,000) 140,000 200,000 Minus: Adjusted basis (60,000) Selling expenses (13,000) Depreciation recapture
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This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

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installment_sale_solution - Solution: Installment sales...

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