Ramon sold land in 2017 with a cost of $80,000 for $200,000 . The sales agreement called for a $50,000 down payment and a $50,000 payment plus 8% interest to be received on the first day of each year for the next three years. What would be the consequences of the following (treat each part independently and assume Ramon uses the installment method whenever possible):
a. In 2017, Ramon gave one of
the $50,000 installment obligations to a close relative.
b. In 2017, Ramon transferred the installment obligations ($50,000) to his 100% owned corporation.
c. Ramon collected the $50,000 plus $12,000 interest on January 1, 2018, and died on January 2, 2018.
a. The gift is a taxable disposition and, thus, Ramon must recognize a $30,000 gain ($120,000/$200,000 × $50,000).
b. The transfer to the controlled corporation is not a taxable disposition. The corporation will recognize the gain when it collects the amount due.
c. Death is not a taxable disposition. Ramon's beneficiaries will recognize the gain (as income in respect of a decedent) when the payments are collected. Ramon recognizes a $30,000 gain ($120,000/$200,000 × $50,000) plus $12,000 interest on his final return for 2018.
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