Kay, who is not a real estate dealer, sold an apartment house to Polly during the current year (2019). The closing statement for the sale is as follows. 

During 2019, 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 2 (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. 

(Think carefully about the manner in which the property taxes are handled before you begin your computations.) 

b. Same as parts (a)(2) and (3), except that Kay’s basis in the property was $35,000.

Transcribed Image Text:

$ 190,000 Total selling price Add: Polly's share of property taxes (six months) paid by Kay 3,000 Less: Kay's 8% mortgage assumed by Polly $5,000 Polly's refundable binder ("earnest money") paid in 2018 1,000 Polly's 8% installment note given to Kay 99,000 Kay's real estate commissions and attorney's fees Cash paid to Kay at closing (163,000) $ 30,000 $ 38,000 8,000 Cash due from Polly = $30,000 + $8,000 expenses