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CCH Federal Taxation Basic Principles Chapter 11 Property Transactions: Nonrecognition of Gains and ... - page 62 / 66

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CCH Federal Taxation Basic Principles

62 of  66

Imputed interest rate  

Imputed interest computations would have been required if:

1. The installment contract price exceeded $3,000; AND

2. The interest rate charged was less than the applicable federal rate.      [Sects. 483 and 1274.]

This would require a slight modification to the illustration above -- i.e., column (c) would be based on the AFR rate, not the 8% contract rate.  The rest of the schedule would flow as shown above.

Note that the interest portion of annual installment payments must be computed using semi-annual compounding.  [Secs. 1274(a), 1273(a) and 1272(a)]

Installment Method—Solution Step One

Chapter 11, Exhibit 22c

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