Julls ahd Losses, and Depreciation Recapture 11-43 25. Installment Sales. (Obj.

Question

Julls ahd Losses, and Depreciation Recapture 11-43 25. Installment Sales. (Obj. 6) Tyka sold depreciable personal property for $70,000 on August 4, 2016. The buyer agreed to pay $10,000 at the time of sale and $20,000 on August 4 in each of the next three years. In addition, interest at the current market rate will be paid on the remaining installment balance. Tyka bought the property several years ago for $43,000. Depreciation totaling $18,000 was taken on the property Compute the total gain from the sale. a. b. How much gain and what type of gain must be reported in the year of sale? How much gain and what type of gain must be reported in cach of the next three eans? c. nrching IRS Publication 537. (Obj. 6) L d narr Ien received

Explanation / Answer

Question - a

Total gain = 70000 - 43000 = 27000

18000 of depreciation already provided is recapture. So 43000 shall be taken as the basis.

Question - b

Long term capital gain to be recognized in Year of sale = 27000/ 70000 * 10000 = 3857

Question - c

Long term capital gain to be recognized in remaining 3 years = 27000 / 70000 * 20000 = 7714 per year.

Interest shall be included in ordinary income. It shall be calculated on outstanding balances at the market rate.

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