Several years ago, Ms. Nina stark acquired an exiting building to be used in her unincorporated business. The total cost of the property was $2,300,000, with $800,000 of this amount representing the estimated fair market value of the land on which the building was situated.

She has decided that, in order to improve her cash position, she would like to sell this building and move her operations to leased premises. On January 1,2020 the building is sold for $2,800,000. Of this total $90,000 reflects the value of the land on which the building is situated. At this time, the UCC balance in Class 1 is $128,019. The following was the only asset in Class 1.

The terms of the sale require the buyer to make a down payment at time of purchase, with the remaining balance payable on January 1,2022. No payments are required in 2021. Interest on the outstanding balance is paid on December 31 at an annual rate of 6 percent.

Nina plans to use reserves to defer the payment of taxes on the capital gain that results from this sale.

Required: 

Indicate the tax effects of these transactions on Nina's Net Income for Tax Purposes for the years 2020, 2021, and 2022, assuming:

A. that the down payment was equal to 10 percent of the sales price.

Answer rating: 100% (QA)

Capital cost Fair value 800000 1500000 2300000 II UCC balance as on January 1 2020 0 1248019 1248019 III Sale price 900000 1900000 2800000 IV Capital gain 100000 651981 751981 III I III II Answer to Q... View the full answer