What amount of installment sale income must a seller recognize in the current year if they sold an antique automobile?

When determining the amount of installment sale income a seller must recognize in the current year, it’s important to understand the basics of the installment sale method. This approach allows the seller to recognize income as payments are received rather than all at once at the time of sale.

The key components to consider when calculating the recognized income are the gross profit, the total contract price, and the payments received during the tax year. The formula used is:

Recognized Income = (Payments Received in Current Year) x (Gross Profit Percentage)

To arrive at the correct amount, one would typically have calculated the total gain from the sale, including the total selling price and the seller's basis in the asset. The gross profit percentage is calculated by dividing the total gain by the total contract price. Once you have this percentage, you apply it to the payments received during the year to determine how much income should be recognized for tax purposes in that year.

In this scenario, if the recognized amount is $15,333, it is likely that this figure represents the calculated portion of the payments received that corresponds with the seller’s gross profit on the sale of the antique automobile for that current tax year. This means the seller is only taxed on the portion of the gain that corresponds