In 2011, Sophia Sold Real Estate (Adjusted Basis of $500,000)

question 58

Multiple Choice

In 2011, Sophia sold real estate (adjusted basis of $500,000) for $1,500,000. Under the terms of the sale, she received two notes of $750,000 each, with 9% interest provided. One note is due in 2012 and the other in 2013. She did not elect out of the installment method of recognizing gain. In 2012 and before the first note matures, Sophia gives both notes to her adult children. At this time, the notes are worth a total of $1,400,000. Disregarding the interest element, a tax result of these transactions is:

• A) A gift to the children of $1,500,000.
• B) Sophia recognizes no gain.
• C) Sophia recognizes a gain of $900,000.
• D) Sophia recognizes a gain of $1,000,000.
• E) None of the above.

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Definitions:

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