Question

Steve sold for $200,000 his undivided one-third interest in an apartment building in which he had $30,000 adjusted basis. The buyer put $40,000 down, assumed Steve’s share of the mortgage, and signed an installment obligation with a face value of $120,000. $20,000 of the principal was paid at the end of the year sale. Compute the following:

a. Contract price

b. Gross profit and gross profit percentage.

c. Payment in year of sale

d. Gain in the year of sale

Answer 1

a)
Down payment	$   40,000.00
Installment obligation	$ 120,000.00
Excess of mortgage assumed over basis(30000-2000)	$   10,000.00
Contract price	$ 170,000.00
b)
Gross proft  = $170,000 - $0	$ 170,000.00
Gross proft percentage = 100% ($170,000 ÷ $170,000).	100%
c)
Down payment	$   40,000.00
Mortgage assumed over basis	$   10,000.00
Installment payment made	$   20,000.00
Payments in year of sale	$   70,000.00
d)
Gain in year of sale	$ 100,000.00