Installment Sale

[TAX4US]

TP 70 yrs old. Sold land on installment sale 09 for 125k receiving 20k dp. The rest in 2010 by an early payoff by the buyer. TP only other income is 3k in interest and 5k in SS benefits. Question is can TP elect to report 50k this year and remainder in 2010? TP is cash basis. Is the rule going to be report as received or report ALL in 09. Makes about a $4k difference to tp.

[spencer]

I'm confused

you say client received 20k down and wants to report 50k? I wouldn't do that but there's a lot of stuff I don't know. Let's see what others have to say.

[Burke]

He has an option to "elect out" of the installment sale if he wishes and report entire gain in 2009. He cannot selectively pick the amounts he reports. It's the actual amt recived or all of it.

[TAX4US]

He has an option to "elect out" of the installment sale if he wishes and report entire gain in 2009. He cannot selectively pick the amounts he reports. It's the actual amt recived or all of it.

I kinda figured it was going to be what he received or all of it. Will see what tp wants to do after checking tax for both years. Thanks to all.

[taxxcpa]

Installment sales

If he uses the installment method, then he would report the amount received multiplied by the percentage profit each year. His only other option would be to report the entire gain in the year of the sale.
If his other income is the same both years, there would be some advantage to the installment method even though a large part would be taxed in the second year.

[Possi]

new to Installment sale

My clients are going to sell their 2nd home as owner financed installment sale.

I have no clue what to do with this. Is there something I can study tonight so I'll be in the know when the time comes?

[dmj4]

Agree

I agree, all or just current year.

[RitaB]

Installment Sale

My clients are going to sell their 2nd home as owner financed installment sale.

I have no clue what to do with this. Is there something I can study tonight so I'll be in the know when the time comes?

Instructions to Form 6252 will help. The original sale goes on 6252, and the principal collected will be reported there each year, and the profit per year (based on the gain on the sale) will flow to Sch D. Also, your client is going to need to issue a 1098 (or is it 1099-Int?) for the interest collected each year, so the instructions for completing that would be good. (You know, that's the packet our clients bring in a week AFTER we've done the 1099's.) Client will report interest income each year on Sch B. ATX has a tab down there for "Seller Financed." So, be sure and get name, address, SSN for buyer. And, of course get (or prepare) an amorization schedule.

You will do fine. It's not that bad, but no way can typical Joe Taxpayer handle this, so charge for your expertise.

[thomtax]

My clients are going to sell their 2nd home as owner financed installment sale.

I have no clue what to do with this. Is there something I can study tonight so I'll be in the know when the time comes?

I don't know which software you use, but Drake has a page where you enter all the information into it. It will calculate the profit percentage for you and carry it forward each year so that you do not have to re-enter anything except the amounts received in the year that you are reporting.

LT

[FEDUKE404]

Income received when?

To be sure I completely understand this:

You are saying a person, during calendar year 2009, received a total of (only) $20k with an installment arrangement established to receive the remaining $105k later.

Now the client, who has/will receive the $105k during calendar year 2010 wants to declare $125k as 2009 income??

My morning coffee must not have kicked in yet........

BTW: I hope there was interest stated in the installment sale agreement. Otherwise you might have to go down the "imputed interest" route, which can create a LOT of extra work, not to mention an unhappy client (some "ordinary" income thus appears).

FE

[Possi]

Thanks

Instructions to Form 6252 will help. The original sale goes on 6252, and the principal collected will be reported there each year, and the profit per year (based on the gain on the sale) will flow to Sch D. Also, your client is going to need to issue a 1098 (or is it 1099-Int?) for the interest collected each year, so the instructions for completing that would be good. (You know, that's the packet our clients bring in a week AFTER we've done the 1099's.) Client will report interest income each year on Sch B. ATX has a tab down there for "Seller Financed." So, be sure and get name, address, SSN for buyer. And, of course get (or prepare) an amorization schedule.

You will do fine. It's not that bad, but no way can typical Joe Taxpayer handle this, so charge for your expertise.

Thanks for the information. I'll be ready.

[RitaB]

You're welcome

Thanks for the information. I'll be ready.

I know you will! Best wishes. Dazzle 'em!

[Possi]

Taxwise

I don't know which software you use, but Drake has a page where you enter all the information into it. It will calculate the profit percentage for you and carry it forward each year so that you do not have to re-enter anything except the amounts received in the year that you are reporting.

LT

Taxwise has the form, but it's no cakewalk. I pray it carries forward from yr to yr.

[taxmom34]

web site calculates

the installment agreement. my client a few years ago entered into installment sale and went to www.hsh.com and entered information for mortgage calculation and made copy for me and i used it for 3 years. it had very good breakdown of amount paid to interest and principal and balance, and even totals for the year (for 20 years). i found it useful for another client the next year.

[LindaK]

Taxwise form

Taxwise has the form, but it's no cakewalk. I pray it carries forward from yr to yr.

Taxwise does carry the form forward with the percentage. I've used it several times.