Hal, a cash basis taxpayer, sold investment land in 2018 for $200,000. He received $40,000 in...
Hal, a cash basis taxpayer, sold investment land in 2018 for $200,000. He received $40,000 in the year of sale and $160,000 in 2019. The cost of the land was $80,000. Under the installment method, how much gain must the taxpayer report in 2018?
a. Hal must recognize $24,000 gain in the year of the sale
B. Hal must recognize $36,000 gain in the year of the sale
C. Hal must recognize $60,000 gain in the year of the sale
D. Hal must recognize $21,600 gain in the year of the sale
Homework Answers
Answer: a. Hal must recognize $24,000 gain in the year of the sale.
Explanation
The recognized gain in the year of the sale (2018) = [($200,000 - $80,000) / $200,000] x $40,000
= ($120,000 / $200,000) x $40,000
= $24,000
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