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Keanu sold land for $400,000 plus a note for $400,000. The interest rate on the note was equal to the Federal rate. The fair market value of the note was $400,000. His basis in the land was $75,000:

a. If Keanu is an accrual basis taxpayer and does not use the installment method to report the gain, his gain in the year of sale is $725,000 ($400,000 + $400,000 - $75,000)

b. If Keanu is a cash basis taxpayer, he cannot use the installment method to report the gain.

c. If Keanu is a cash basis taxpayer and uses the installment method, the contract price is $400,000.

d. If Keanu is a cash basis taxpayer, his gain in the year of the sale is $325,000 ($400,000 - $75,000).

e. None of the choices.

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