What is Gross profit percentage?

Gross profit percentage is a tax calculation formula used in installment sales to determine what portion of each payment represents taxable gain. The percentage equals the total gain on the sale divided by the contract price, with the total gain calculated as the selling price minus the adjusted basis minus the selling expenses. For example, if the property sells for $500,000 with a basis of $300,000 and selling expenses of $25,000, the gross profit is $175,000. With a contract price of $500,000, the gross profit percentage is 35%, meaning 35% of each payment is taxable as capital gain. The Sell your home strategy utilizes gross profit percentage calculations to optimize the timing of gain recognition and coordinate with home sale exclusion benefits.

Related Terms

What is an Installment sale?

What is Capital Gain?

What is Adjusted Basis?

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