Tax Accounting Assignment
On January 1, 2014, Seller Corp and Buyer Corp closed on the sale of a factory building for $30,000,000 with the following payment terms: Buyer Corp paid $3,000,000 at closing. Buyer Corp assumed $7,000,000 in existing mortgage debt. Buyer Corp will make a payment of $5,000,000 to Seller Corp on January 1, 2015, 2016, 2017, and 2018 plus interest at a market rate.
Seller and Buyer agreed that the $30,000,000 price would be allocated as follows: Land $6,000,000; Building $20,000,000; Machinery and Equipment $4,000,000.
Seller has owned the property for many years, and has a tax basis in the land of $2,000,000. Seller paid $12,000,000 for the building and has taken depreciation deductions of $7,000,000. Seller paid $5,000,000 for the machinery and equipment and has taken depreciation deductions of $3,000,000.
Compute the impact that this transaction will have on taxable income of Seller Corp for the tax years 2014 -2018 assuming no special elections are made?