Kay, who is not a dealer, sold an apartment house to Polly during 2013. The closing statement for the sale is as follows:

During 2013, Kay collected $9,000 in principal on the installment note and $2,000 in interest. Her basis in the property was $110,000 [$125,000 − $15,000 (depreciation)]. The Federal rate is 6%.
a. Compute the following:
1. Total gain.
2. Contract price.
3. Payments received in the year of sale.
4. Recognized gain in the year of sale and the character of such gain.
b. Same as (a)(2) and (3), except that Kay's basis in the property was $35,000.

Transcribed Image Text:

Total selling price Add: Polly's share of property taxes (6 months) paid by Kay Less: Kay's 8% mortgage assumed by Polly $190,000 3,000 $55,000 Polly's refundable binder ("earnest money") paid in 2013 Polly's 8% installment note given to Kay Kay's real estate commissions and attorney's fees 1,000 99,000 8,000 163,000) Cash paid to Kay at closing Cash due from Polly $30,000$8,000 expenses 30,000 38,000