During 2008, Cynthia sold a vacat lot to Joseph for $180,000. Cynthia's adjusted basis in the lot was $101,000 and she incurred selling expenses of $7,000. Joseph paid Cynthia $30,000 down payment in 2008 and agreed to pay $30,000 per year plus interest for the next five years beginnign in 2009. What is the amount of gain to be included in Cynthia's gross income for 2008?
To calculate the amount of gain to be included in Cynthia's gross income for 2008, we need to first determine the total amount realized from the sale and then subtract Cynthia's adjusted basis and selling expenses.
Step 1: Calculate the total amount realized:
Total amount realized = Down payment + Annual payments
The down payment Joseph paid in 2008 is $30,000.
To calculate the annual payments, we multiply the annual payment amount ($30,000) by the number of years (5). This gives us $150,000.
Total amount realized = $30,000 + $150,000
Total amount realized = $180,000
Step 2: Calculate the gain on the sale:
Gain = Total amount realized - Adjusted basis - Selling expenses
Adjusted basis = $101,000
Selling expenses = $7,000
Gain = $180,000 - $101,000 - $7,000
Gain = $72,000
Therefore, the amount of gain to be included in Cynthia's gross income for 2008 is $72,000.
To find out the amount of gain to be included in Cynthia's gross income for 2008, we need to determine the selling price and the adjusted basis.
The selling price is calculated by adding the down payment received in 2008 to the annual payments agreed upon for the next five years, starting in 2009.
Down payment received in 2008: $30,000
Annual payments agreed upon for the next five years: $30,000 x 5 = $150,000
Selling price = Down payment + Annual payments
Selling price = $30,000 + $150,000 = $180,000
The adjusted basis is the original cost of the lot plus any additional expenses incurred during the selling process.
Original cost of the lot (adjusted basis): $101,000
Selling expenses: $7,000
Adjusted basis = Original Cost + Selling Expenses
Adjusted basis = $101,000 + $7,000 = $108,000
Now we can calculate the gain by subtracting the adjusted basis from the selling price:
Gain = Selling Price - Adjusted Basis
Gain = $180,000 - $108,000 = $72,000
Therefore, the amount of gain to be included in Cynthia's gross income for 2008 is $72,000.