Tax treatment of Installment method for sale of tracts of land
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Ranch Corporation sells five acres of land in 2009 for a total contract price of $125,000. The company received a down payment of $25,000 and is to receive $20,000 in each of the following five years. Ranch's gross profit from the sale is $80,000.
Part A: What are the tax consequences if: Ranch reports its gain on the installment method?
Part B: What are the tax consequences if: Ranch elects out of the installment method?
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Solution Summary
The solution determines the tax treatment of Installment method for sale of tracts of land.
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PART A
Gross profit rate = 80000/125000 = 64%
Under the installment method, Ranch has to report 64% of its annual collections as ...
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