Bob acquired rental property in June 2004 for $370,000 and sold it in October 20
ID: 2488825 • Letter: B
Question
Bob acquired rental property in June 2004 for $370,000 and sold it in October 2015. $35,000 in straight-line depreciation has been taken on the house. A run-up in housing prices in San Diego allowed him to sell the house for $575,000. In the year of sale, Dan received $175,000 when the buyer sold some investments, an additional $200,000 when the buyer closed a loan from the bank, and took a $200,000 note from the buyer, payable on the anniversary of the sale date in 10 installments of $20,000 each plus interest on the unpaid balance.
Using the installment method, calculate his taxable gain in the year of sale.
Explanation / Answer
Given Facts a) Sales Price 5,75,000 b) Selling expenses - c) Adjusted Basis (370000-35000) 3,35,000 d) Installment basis (b+c) 3,35,000 e) Gross profits (a-d) 2,40,000 f) Gross profit ratio (e/a*100) 41.74% Tax Year Annual Payment Gain (annual payment * Gross profit Ratio) Year 1 1,75,000 1,75,000 Year 1 2,00,000 2,00,000 Year 1 2,00,000 83,478 Year 2 2,00,000 83,478 Year 3 2,00,000 83,478 Year 4 2,00,000 83,478 Year 5 2,00,000 83,478 Year 6 2,00,000 83,478 Year 7 2,00,000 83,478 Year 8 2,00,000 83,478 Year 9 2,00,000 83,478 Year 10 2,00,000 83,478 Total 23,75,000 12,09,783