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10 November, 03:07

Darren sold Section 1245 property for $200,000, to be paid with 6% interest over five annual payments of $40,000, with the first payment due this year. Darren purchased the property for $150,000 several years ago and claimed depreciation of $25,000. What amount of capital gain will Darren report in the year of sale using the installment method?

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  1. 10 November, 03:42
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    Darren will report in the year of sale a capital gain of $10,000

    Explanation:

    In order to calculate the amount of capital gain will Darren report in the year of sale using the installment method we would have to calculate the following formula:

    amount of capital gain will Darren report in the year of sale=sale gain*percentage of installment collected

    sale gain=sale value - purchase price

    sale gain=$200,000 - $150,000

    sale gain=$50,000

    percentage of installment collected=five annual payments/sale value

    percentage of installment collected=$40,000/$200,000

    percentage of installment collected=20%

    Therefore, amount of capital gain will Darren report in the year of sale=$50,000*20%

    amount of capital gain will Darren report in the year of sale=$10,000

    Darren will report in the year of sale a capital gain of $10,000
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