Installment Sales

Question 1

Jane sells a plot of land with an adj basis of $100000 in 2024. The buyer agrees to pay $125000, with cash down of $25000 and $20000 plus 4% interest in each of the next five years. What is Jane’s gross profit on this installment sale and what amount is taxable in 2024?

Answer 1

Gross Profit = $125000 - $100000 = $25
Gross Profit % = $25K/$125K = 20%
Taxable in 2024 = $25K (downpayment) X 20% = $5000

Note: Problem says “4% interest in each of the next five years.” So the first $20000 not paid until 2025 and so interest income would go into that year.