John Sold an Apartment Building for $600,000

question 31

Essay

John sold an apartment building for $600,000.His basis in the building was $360,000 subject to $30,000 of depreciation recapture.John received $150,000 in the year of sale, the buyer assumed John's mortgage payable of $240,000, and the buyer gave John an 8% (the current Federal rate) note of $210,000 due in five years.The interest on the note was payable each June 30 beginning in the year following the year of the sale.John incurred $30,000 of selling expenses which he paid for in the year of sale.Compute John's installment sales gain that should be reported in the year of sale.

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Definitions:

Interest Rates

The cost of borrowing money, expressed as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their money.

Optimal Choice

The most efficient and effective decision or selection made from among various alternatives, based on the criteria of maximizing utility or benefit.

Budget Constraint

The restriction on the assortment of goods and services a consumer is able to purchase, determined by their income and the costs of those items.

Interest Rate on Savings

The percentage yield paid by financial institutions to deposit account holders on the balances in their savings accounts.