What is the composition of each payment

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Question - Father, age 50, sells an office building worth $500,000 (assume all of the property is depreciable) to his son in exchange for a private annuity. The father has a basis of $200,000 and he receives an unsecured promise to pay him $60,000 per year for the rest of his life. The interest rate for annuities is 10% and the father's life expectancy is 25 years.

(a) What is the composition of each payment?

(b) What basis does son use for depreciation?

(c) Suppose the father died after year 3. What are the consequences?

(d) Suppose son sold the building while father was alive. How would gain or loss be measured?

(e) Is any part of the annuity payment deductible as interest?

Reference no: EM131816601

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