Question

7) In 2019, Skylar sold an apartment building for $144,000 cash and a $1,440,000 note due in two years. Skylar's cost of the property was $1,152,000, and he had deducted depreciation of $691,200, $276,480 of which was in excess of what the straight-line amount would have been. a. Under the installment sales method, what is Skylar's total realized gain? b. In 2019, how much § 1250 gain does Skylar recognize? How much § 1231 gain does he recognize?

Answer 1

Answer:

(a) he total realized gain is $1,123,200.

(b) § 1250 gain realized in 2019 is, $276,480.

(c) The § 1231 gain realized in 2019 is, $77040.

Step-by-step explanation:

(a)

Compute Skylar's total realized gain under the installment sales method as follows:

Cash Received = $144,000

Note Receivable = $1,440,000

Total Selling Price = Cash Received + Note Receivable

                               = $144,000 + $1,440,000

                               = $1,584,000

Cost of Property = $1,152,000

Deducted Depreciation = $691,200

Adjusted Bias = Cost of Property - Deducted Depreciation

                       = $1,152,000 - $691,200

                       = $460,800

Total Realized Gain = Total Selling Price - Adjusted Bias

                                 = $1,584,000 - $460,800

                                 = $1,123,200

Thus, the total realized gain is $1,123,200.

(b)

§ 1250 gain will be same as the amount of depreciation that was in excess of the straight-line amount.

Thus, § 1250 gain realized in 2019 is, $276,480.

(c)

Total Realized Gain = $1,123,200

§ 1250 gain realized in 2019 = $276,480

§ 1231 gain = Total Realized Gain - § 1250 gain realized in 2019

                  = $1,123,200 - $276,480

                  = $846,720

The total selling price was, $1,584,000.

Compute the percentage of § 1231 gain of the selling price as follows:

§ $\text{ 1231 gain}\%=\frac{846,720}{1,584,000}\times 100=53.45455\%\approx 53.5\%$

Thus, 53.5% of the cash received will be the § 1231 gain.

§ 1231 gain realized in 2019 = $144,000 × 53.5% = $77,040.

Thus, the § 1231 gain realized in 2019 is, $77040.