The Andersons are considering selling the condo on High Road. They are considering two options, a like-kind exchange or installment sale.

First consider a like-kind exchange. Because the Andersons are avid skiers, they are considering purchasing a new ski condo in a mountain resort. The purchase price of the ski condo will be $318,000 and they can sell High Rd. for $137,500. For the sake of simplicity, assume for purposes of this question only, that the depreciation taken on the High Road property is $20,000. The Andersons will assume a mortgage to pay for the difference between the two properties

Alternatively, suppose they sell property the High Road outright. They are aware of the installment sale technique. They are not sure, however, of the income tax consequences. Discuss the use of this technique. Further, to demonstrate the tax consequences to them, assume they would receive a down payment of $37,500, and $50,000 per year for two years. They are aware that the note must carry an adequate interest rate, and that the interest received is taxable, so you do not need to discuss that aspect of the installment sale.