installment sale

[superman]

New client comes in has an installment sale of raw land originally started back in 2004. On original tax return client took a 15000 deposit and then was collecting interest only on remaining balance for the last 4 years. Has always claimed interest on sch b and now the buyer paid off remaining balance. I have never done one of these but I looked it up and it seems that it should be completed on the sch D? If this is true does the basis get reduced by the amount already claimed? Any help or guideance on where to look is greatly appericated.

Superman

[Snaggletooth]

Step by Step

...or sorta, anyway.

1. Calculate the capital gain on the entire sale for 2004 as if all the money had been received then. The gain divided by the selling price will be the PROFIT PERCENTAGE.
2. Divide all payments since 2004 into interest and principle. The $15,000 down payment should be all principle.
3. The interest from 2. should have been reported every year including 2004 that interest payments were received.
4. The $15,000 down payment X Profit Percentage should have been reported as profit on Form 6252 in 2004, and that amount should have been transferred to the appropriate line on Schedule D.
5. Any principle payments should have these payments X Profit Percentage reported on Form 6252 as profit for succeeding years, and transferred to Sch D. Your Original Post tells us there weren't any.
6. The principle payments in the final year (including the payoff of principle) should be X Profit Percentage on Form 6252 as profit.and transferred to Sch D.

A couple of other quality control items:
a. The 6252 for each year contains an accumulated amount of prior principle payments. The total of these, plus the principle paid in the last year should equal the total selling price.
b. The total profits of all 6252s over the years should equal the total capital gain.

[rjholmes]

Start with F6252. That form on the original return should have the gain figured and the percentage of principal to be included in income. From there any long term gain should flow to Sch D and ordinary income to page 1 of the 1040.