Question

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?

Answer 1

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

Step-by-step 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