Question
31. George sells property to Tom under an installment sale for $100,000. Georges basis in the property is $75,000. Payments of $20,000 plus interest of
31. George sells property to Tom under an installment sale for $100,000. Georges basis in the property is $75,000. Payments of $20,000 plus interest of 1% of the remaining principal balance (assume adequate) will be paid each year for 5 years. After the first year, a payment of $21,000 ($20,000 principal payment plus $1,000 interest payment) is made by Tom to George. Assume any capital gain on the sale is long-term capital gain. How much of the first payment is treated as capital gain?
- $1,000
- $5,000
- $15,000
- $20,000
32. George sells property to Tom under an installment sale for $100,000. Georges basis in the property is $75,000. Payments of $20,000 plus interest of 1% of the remaining principal balance (assume adequate) will be paid each year for 5 years. After the first year, a payment of $21,000 ($20,000 principal payment plus $1,000 interest payment) is made by Tom to George. Assume any capital gain on the sale is long-term capital gain. How much of the first payment is treated as basis recovery?
- $1,000
- $5,000
- $15,000
- $20,000
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