Kay, who is not a dealer, sold an apartment house to Polly during the current year (2017). The closing statement for the sale is as follows:

During 2017, Kay collected $9,000 in principal on the installment note and $2,000 of interest. Kay€™s basis in the property was $110,000 [$125,000 - $15,000 (depreciation)].
The Federal rate is 6%.
a. Compute the following:
1. Total gain.
2. Contract price.
3. Payments received in the year of sale.
4. Recognized gain in the year of sale and the character of such gain.
b. Same as parts (a)(2) and (3), except that Kay€™s basis in the property was $35,000.

Transcribed Image Text:

Total selling price Add: Polly's share of property taxes (six months) paid by Kay Less: Kay's 8% mortgage assumed by Polly Polly's refundable binder ("earnest money") paid in 2016 Polly's 8% installment note given to Kay Kay's real estate commissions and attorney's fees Cash paid to Kay at closing Cash due from Polly = $30,000 + $8,000 expenses $ 190,000 3,000 $55,000 1,000 99,000 8,000 (163,000) $ 30,000 $ 38,000