Question

During year 1, albrecht sold his personal sport plane that had an adjusted basis to him of $112,000 to roy for $140,000. roy paid $40,000 as a down payment and agreed to pay $20,000 per year plus interest for the next 5 years. what is the amount of gain to be included in albrecht’s gross income for year 1?

Answer 1

Answer:

$8000

Explanation:

Given that:

Adjusted basis of sport plane = $112,000

Sales price = $140,000

Down payment = $40,000

Balance paid in $20,000 installment for the nest 5 years

Gross income:

Gross income = sales price - adjusted basis

Gross income = $140,000 - $112,000

Gross income = $28,000

Based on the installment payment of $20,000:

140,000/20,000 = 7

Gross income = $28000/ 7 = $4000

With down payment being 40,000

In year 1, down payment of $40,000 was made, which is 2 times the yearly installment amount.

Hence gross profit in year 1 = $4000 × 2 = $8000