I am having trouble figuring Line 25. Could someone please help me?

Calculation of Gain or Loss, Installment Sales (LO 8.3, LO 8.9)

Steve Drake sells a rental house on January 1, 2016, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000. Steve's original cost for the house was $180,000 and accumulated depreciation was $30,000 on the date of sale. He collects only the $120,000 down payment in the year of sale.

a.If Steve elects to recognize the total gain on the property in the year of sale, calculate the taxable gain.

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Feedback

Some taxpayers sell property and do not receive payment immediately. Instead, they take a note from the purchaser and receive payments over an extended period of time. It would be a financial hardship to require those taxpayers to pay tax on all of the gain on the sale of the property in the year of sale when they may not have received enough cash to cover the taxes.

b.Assuming Steve uses the installment sale method, complete Form 6252 for the year of the sale.

If an amount is zero, enter "0". Enter all amounts as positive numbers. Round all decimals to three places and any dollar amount to the nearest dollar.

Form6252

Department of the Treasury Internal Revenue ServiceInstallment Sale Income

Attach to your tax return.

Use a separate form for each sale or other disposition of property on the installment method.

Information about Form 6252 and its instructions is atwww.irs.gov/form6252.OMB No. 1545-02282016

Attachment

Sequence No.79

Name(s) shown on return

Steve DrakeIdentifying number1Description of property Rental Property

2aDate acquired (mm/dd/yyyy) b

Date sold (mm/dd/yyyy) 01/01/20163Was the property sold to a related party (see instructions) after May 14, 1980? If "No," skip line 4 . . . Yes No4Was the property you sold to a related party a marketable security? If "Yes," complete Part III. If "No," complete Part III for the year of sale and the 2 years after the year of sale . . . . . . . . . .

Yes NoPart IGross Profit and Contract Price.Complete this part for the year of sale only.5Selling price including mortgages and other debts.Don'tinclude interest, whether stated or unstated56Mortgages, debts, and other liabilities the buyer assumed or took the property subject to (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . .67Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78Cost or other basis of property sold . . . . . . . . . . . . . . . . . . . . . . . . . . .89Depreciation allowed or allowable . . . . . . . . . . . . . . . . . . . . . . . . . . . .910Adjusted basis. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . .1011Commissions and other expenses of sale . . . . . . . . . . . . . . . . . . . . . .1112Income recapture from Form 4797, Part III (see instructions) . . . . . . . .1213Add lines 10, 11, and 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1314Subtract line 13 from line 5. If zero or less,don'tcomplete the rest of this form (see instructions)1415If the property described on line 1 above was your main home, enter the amount of your excluded gain (see instructions). Otherwise, enter -0-. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1516Gross profit.Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1617Subtract line 13 from line 6. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1718Contract price.Add line 7 and line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Part IIInstallment Sale Income.Complete this part for the year of saleandany year you receive a payment or have certain debts you must treat as a payment on installment obligations.19Gross profit percentage (expressed as a decimal amount). Divide line 16 by line 18. For years after the year of sale, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1920If this is the year of sale, enter the amount from line 17. Otherwise, enter -0- . . . . . . . . . . . . . . . .2021Payments received during year (see instructions).Don'tinclude interest, whether stated or unstated . .2122Add lines 20 and 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2223Payments received in prior years (see instructions).Don'tinclude interest, whether stated or unstated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2324Installment sale income.Multiply line 22 by line 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2425Enter the part of line 24 that is ordinary income under the recapture rules (see instructions) . . . . .2526Subtract line 25 from line 24. Enter here and on Schedule D or Form 4797 (see instructions) . . . . .26Part IIIRelated Party Installment Sale Income. Don'tcomplete if you received the final payment this tax year.27Name, address, and taxpayer identifying number of related party28Did the related party resell or dispose of the property ("second disposition") during this tax year? . . . . . . . . . . . . . . . . . Yes No29If the answer to question 28 is "Yes," complete lines 30 through 37 below unless one of the following conditions is met. Check the box that applies.aThe second disposition was more than 2 years after the first disposition (other than dispositions of marketable securities). If this box is checked, enter the date of disposition (mm/dd/yyyy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___________bThe first disposition was a sale or exchange of stock to the issuing corporation.cThe second disposition was an involuntary conversion and the threat of conversion occurred after the first disposition.dThe second disposition occurred after the death of the original seller or buyer.eIt can be established to the satisfaction of the IRS that tax avoidance wasn't a principal purpose for either of the dispositions. If this box is checked, attach an explanation (see instructions).30Selling price of property sold by related party (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3031Enter contract price from line 18 for year of first sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3132Enter thesmallerof line 30 or line 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3233Total payments received by the end of your 2016 tax year (see instructions) . . . . . . . . . . . . . . . . . . .3334Subtract line 33 from line 32. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3435Multiply line 34 by the gross profit percentage on line 19 for year of first sale . . . . . . . . . . . . . . . . . . .3536Enter the part of line 35 that is ordinary income under the recapture rules (see instructions) . . . . . . .3637Subtract line 36 from line 35. Enter here and on Schedule D or Form 4797 (see instructions) . . . . . . . .37For Paperwork Reduction Act Notice, see page 4.Cat. No. 13601RForm6252(2016)

c.Assuming Steve collects $5,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized in that year under the installment sale method.

Round your answer to the nearest dollar.

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