Question

George sold land to an unrelated party in 2018. His basis in the land was $56,000, and the selling price was $168,000—$42,000 payable at closing and $42,000 (plus 10% interest) due January 1, 2019, 2020, and 2021.

What would be the tax consequences of the following?

Treat each part independently, assume that George did not elect out of the installment method and the installment obligations have values equal to their face amounts.

Ignore interest in your calculations. Round the gross profit to three decimal places before converting to a percentage. For example: .48245 would be rounded to .482 and converted to 48.2%. If required, round final answers to the nearest dollar.

a. In 2019, George borrowed $16,800 from the bank. The loan was partially secured by the installment notes, but George was personally liable for the loan.

Borrowing using the installment notes as security for the debt   a disposition; therefore, the installment sale gain   accelerated.

b. In 2019, George gave to his daughter the right to collect all future payments on the installment obligations.

George must recognize a $ gain at the time of the gift.

c. On December 31, 2019, George received the payment due on January 1, 2020. On December 15, 2020, George died, and the remaining installment obligation was transferred to his estate. The estate collected the amount due on January 1, 2021.

George must report a $ gain in 2019. The transfer of the installment obligations to George's estate   a taxable event.

Answer 1