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CCH Federal Taxation Basic Principles Chapter 11 Property Transactions: Nonrecognition of Gains and ... - page 58 / 66

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CCH Federal Taxation Basic Principles

58 of  66

Installment Method—Four-Step Computation

Chapter 11, Exhibit 20

Installment method computations require four steps:

 1.  Allocate installment payments between principal and interest.

 2.  Compute ordinary income (“OI”) and Code Sec. 1231 gain.  (If the property had been held long-term for investment purposes, rather than business purposes, then the gain would be classified as a long-term capital gain (LTCG), rather than a Code Sec. 1231 gain.)

 3.  Compute the gross profit %.

4.  Compute recognized gain on the down payment and deferred gain on     the installment payments.

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