Manchester Democrat. [volume] (Manchester, Iowa) 1875-1930, 1920-02-11
Delaware County Farm Bureau

amount representing depreciation In
the value Of the improvements since
March 1. 1913. The amount thus de-
termined should then be subtracted
from the sale price, and the remain
der represents taxable income for the
year Of sale, subject to the conditions
stated below.
LAND PURCHASED ON OR AFTER
MARCH /, 1918
Where land was purchased by the
taxpayer after March / 1913, the same
procedure should be followed as that
outlined in the preceding paragraph,
with the exception that the actual cost
OF the property should be used as q
basis instead Of the value as Of March
l, 1918.
ABLE YEAR.
& Inasmuch as appreciation, or In
crease, In land values is never defini-
tely determined until such time as the
sale is made, the entire profit from the
taxable income for the year in. which
the sale is made This ruling, Of course,
assumes that title to the land Is trans
ferred during the taxable year. Chat
Is, the year for which the return is
made) the purchase price being paid
either in cash or partly in cash and
part in purchase money mortgage.
CONTRACT SALES.
Where land is sold under contract
the same fundamental rules apply for
the computation of the profit, but DIFF
serent rules apply as to the time year.
in which the profit must be reported
for taxation, The following Is q concise
statement OF the rules established by
the Commissioner OF Internal Revenue
to govern sales or real estate under
ontracts involving payment of the con-
sideration in installments: I'D II q
subtantial first payment is.made under
the contract that is. Is per cent or
lore OF the contract price. and the con-
tract provided for but few deferred
payments of relatively large amounts,
the entire profit of the sale should be
reported as income for the year In
which the first payment Is received.
(2.) II the first payment Is less than
Is per cent of the gross contract price,
and the deferred payments are numer-
GUS and Of relatively small amount,
each payment should be considered
separately and the taxpayer should In
clude in his return each year only so
much OF the payment or payments re-
ceived during the year as represents
profit. The part of each payment which
represents profit is arrived at by de-
termining what percentage the gross
profit latter all payments have beeI.
received bears to the gross contract
price.
FOR EXAMPLE
"a" bought 100 acres of land in 1911,
which he fairly estimates was worth
800 an acre on March /, 1918. In 1914
he placed on this land farm buildings
Of frame construction at . cost 1000.
In 1919 he sold the land and buildings
for. 5000 an acre. The land was sold
under a contract, which provided for
a first payment In 1919 Of $1,000 and
for the payment OF the balance Of $25,-
600 in five annual installments Of S.
900 each. He further contracted to give
deed to the purchaser after all the pay
ments had been made. For Income-Tax
purposes "A" should compute and re-
port his profits as follows:
Sale Price---------------- 32,UO0.OO
Value Of land March l. 1913--$16, 100000
Cost OF buildings erected since March
1, .1913------A-------------$5, 900. 90
Total --------------------$21 100000
Depreciation Of percent annually in
the buildings since 1s14----$l,00O.0O
Amount to be deducted from sale price
to determine gross profit -S20, O00.O 90
Gross Profit ON the sale----$12. 900. 00
The $1,000 received in 1919 is less
than Is percent of the total sale price.
Therefore, only So much Of this pay
.ment as represents profits should be
included In his 1919 return.
Following the rule set out above "a
should proceed as follows to determine
how much Of the profit to report in
his 1919 and subsequent returns: "a
Determine what percentage $4,000
(gross profit) Is Of $50 1000 (gross con-
tract price) by dividing $4,000 by 1872.
700 or 3711 percent. CO Therefore
4 4 ~.