Nontaxable dispositions
Area 4: Special Tax Transactions (10-20%)
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Topics
- Installment sales (Section 453)
- Involuntary conversions (Section 1033)
Lessons
Study Frameworks
Installment Sale Gross Profit Percentage
Gross Profit % = (Selling Price - Adjusted Basis - Selling Expenses) / Contract Price
Applied to each installment payment to determine taxable gain. Contract Price = Selling Price - Mortgage Assumed (to extent not exceeding basis). If mortgage exceeds basis, excess is treated as Year 1 payment and added to contract price. Depreciation recapture (Section 1245/1250) is recognized in full in Year 1 regardless.
Involuntary Conversion Replacement Periods (Section 1033)
| Type of Conversion | Replacement Period | Property Standard |
|---|---|---|
| General (casualty, theft, destruction) | 2 years from close of first tax year gain is realized | Similar or related in service or use |
| Condemned real property (productive use/investment) | 3 years from close of first tax year gain is realized | Like-kind (more relaxed standard) |
| Presidentially declared disaster (business/investment real property) | 4 years from close of first tax year gain is realized | Like-kind |
| Livestock (disease) | 2 years from close of first tax year gain is realized | Similar or related in service or use |
| Livestock (drought/weather) | 4 years from close of first tax year gain is realized | Like-kind (other livestock) |