Arnie Is Negotiating the Sale of Land to Phil

question 466

Essay

Arnie is negotiating the sale of land to Phil. Arnie's basis in the land is $3,000,000, and it currently has a fair market value of $5,000,000. Phil wants to pay the purchase price over three years. Arnie suggests that Phil pays
$2,000,000 at closing, then pay $1,200,000 each of the next three years. Arnie would not require that Phil pay any interest under these terms. Discuss the tax issues that Arnie should consider.

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Definitions:

Manufacturing Facilities

The physical plants, factories, and machinery used in the process of producing goods.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to the net profit or loss.

Operating Activities

These involve the primary revenue-generating activities of an entity, such as cash flows from selling goods and services.

Cash Flows

This refers to the net amount of cash being transferred into and out of a business, especially in the context of operating, investing, and financing activities.