Steve Drake sells a rental house on January 1, 2022, and receives $100,000 cash and a note for $50,000 at 7-percent interest. The purchaser also assumes the mortgage on the property of $30,000. Steve's original cost for the house was $175,000 on January 1, 2014, and accumulated depreciation was $30,000 on the date of sale. He collects only the $100,000 down payment in the year of sale. a. If Steve elects to recognize the total gain on the property in the year of sale, calculate the taxable gain. b. Assuming Steve uses the installment sale method, complete Form 6252 on Page 8-57 for the year of the sale. c. Assuming Steve collects $5,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized in that year under the installment sale method

Steve Drake sells a rental house on January 1, 2022, and receives $100,000 cash and a note for $50,000 at 7-percent interest. The purchaser also assumes the mortgage on the property of $30,000. Steve's original cost for the house was $175,000 on January 1, 2014, and accumulated depreciation was $30,000 on the date of sale. He collects only the $100,000 down payment in the year of sale. a. If Steve elects to recognize the total gain on the property in the year of sale, calculate the taxable gain. b. Assuming Steve uses the installment sale method, complete Form 6252 on Page 8-57 for the year of the sale. c. Assuming Steve collects $5,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized in that year under the installment sale method

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Steve Drake sells a rental house on January 1, 2022, and receives $100,000 cash and a note for
$50,000 at 7-percent interest. The purchaser also assumes the mortgage on the property of $30,000.
Steve's original cost for the house was $175,000 on January 1, 2014, and accumulated depreciation
was $30,000 on the date of sale. He collects only the $100,000 down payment in the year of sale. a. If
Steve elects to recognize the total gain on the property in the year of sale, calculate the taxable gain.
b. Assuming Steve uses the installment sale method, complete Form 6252 on Page 8-57 for the year of
the sale. c. Assuming Steve collects $5,000 (not including interest) of the note principal in the year
following the year of sale, calculate the amount of income recognized in that year under the
installment sale method

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