Installment sales: In 2022 H sells land for $120,000 originally acquired for investment purposes in 2019 for $75,000. He received $50,000 cash at closing and a note receivable for $70,000. The note receivable provides for annual interest only payments for 5 years with the principal balance due at the end of 5 years. In 2023 H uses the note receivable as a pledge for a loan he takes out with his local bank for $35,000, the proceeds of which he uses as a down payment on purchase of rental property. Assume the sale of land qualifies for installment sale treatment in 2022, and H reports it on Form 6252, Installment Sale Income, in his 2022 tax return. What effect, if any, does the pledge of the note receivable in 2023 on the $35,000 loan have from a tax perspective for H? No formal memo required.

Answer rating: 100% (QA)

From a tax perspective the pledge of the note receivable in 2023 as collateral for a loan does not h... View the full answer