Installment Sale

[NotEasy]

What should be done in order to ensure a real estate transaction to be considered an installment sale? Is a installment sale agreement signed by both the buyer and the seller sufficient?

[Burke]

There should be some kind of agreement as to the terms of payment and interest rate, etc, etc. It can be separate, but often included in the sale contract itself.

[taxea]

Its best to include all the details in the sales contract. The contract should include: date of sale, total sale amount, cash down, interest, terms of payment, ending date of payments, what happens if payments are late or not paid, foreclosure terms, etc. This contract is then used to prepare the installment form for the first year. taxea

[veritas]

For tax purposes

to have an installment sale you must receive payments in more than one year.

[taxea]

Yes, but the installment sale form only needs to be done the first year. taxea

[veritas]

The reason I posted

my answer is you can have an installment sale even if the contract did not provider for it. I have seen in the past where a sale was to occur for an agreed upon price but the seller held back funds into the next year for some kind of dispute.

So the seller ended up with an installment sale by default. We could have elected out of that tax treatment but chose not to.

[taxea]

Was there anything in the post that indicated that your situation was at issue? I try not to read more problems into the post than is stated. I find doing this creates posts that go so totally off subject with "what if's" that one forgets the questioned issue. taxea

[Davc]

Yes, but the installment sale form only needs to be done the first year. taxea

The installment form is required each year any principle is received.

[taxea]

Davc can you give me a resource for your post? taxea

[S T]

Form 6252

Form 6252 Instructions

Which Parts To Complete Year of Sale
Complete lines 1 through 4, Part I, and Part II. If you sold property to a related
party during the year, also complete Part III.

Later Years
Complete lines 1 through 4 and Part II for any year in which you receive a
payment from an installment sale. If you sold a marketable security to a
related party after May 14, 1980, and before January 1, 1987, complete Form
6252 for each year of the installment agreement, even if you did not receive a
payment. Complete lines 1 through 4. Complete Part II for any year in which
you receive a payment from the sale. Complete Part III unless you received
the final payment during the tax year.

http://www.irs.gov/pub/irs-pdf/f6252.pdf

[WhiteOleander]

Davc can you give me a resource for your post? taxea

If you did not use form 6252 in a year you received a principle payment, how would you report the principle payment?

[taxea]

my bad...I should have said that the details only need to be filled in the first year and the principal is the only item to fill in for subsequent years.