Taylor sold a capital asset on the installment basis for $1 million in total payments and...
Taylor sold a capital asset on the installment basis for $1 million in total payments and did not charge interest on the deferred payment due in three years. The sale generated a gain that Taylor reported using the installment method.
a. Interest will be imputed, thus increasing the total gross income from the transaction.
b. Interest will be imputed, thus decreasing the total gross income from the transaction.
c. Interest will not be imputed because the contract is for less than five years.
d. Interest will be imputed, decreasing the capital gain from the transaction but not affecting the total gross income from the transaction.
e. Interest will be imputed, thus increasing the buyer’s basis in the asset.
Homework Answers
Answer: Option A
Explanation: As per IRS, in a case where the installment sale has interest which is charged at lesser rate or is not charged, the part of the sale price is charged as interest even if it is not present in the sale contract. The selling price of the asset is decreased and interest income is increased by the amount of the interest. Thus interest will be imputed, thereby increasing the total gross income from the transaction
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Taylor sold a capital asset on the
installment basis for $1 million in total payments and...
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