Estate Installment Sale

[Snaggletooth]

Never thought I would ever hear of anything as inane as this. Executrix of her father's estate is considering selling business property currently in the estate. She has considered "owner financing" in order to bring a better price and a quicker sale. Collateral is firm. Of course, the installment sale doesn't avoid sudden capital gains as it normally does, since the property is already at FMV.

Question: If the installment sale is made while the property is owned by the state, does this mean for tax purposes that the estate must be kept open until the proceeds are fully collected?

Probably not, but until estate is settled, the interest will be ordinary income at estate income tax rates, even if capital gains are non-existent. There are two heirs, so if divided equally, I suppose they could own a joint receivable and report interest every year. If it stays in the estate, there will be no personal deduction or standard deduction, just the paltry estate deduction unless they withdraw the interest.

Taxpayers are young, and little other income -- whereas the property will approach seven digits in value. That's why this question is important.

[JG EA]

Estate Installment

The estate does not stay open just to collect the installment sales. So, once the assets are distributed and the estate is closed, the sale can be split between the beneficiaries, with each reporting their share (same % as originally set up). While the estate reports, part of the profit is capital gains and then the interest part. If it sells at a loss then it's not an installment sale for taxes, and all you would have to deal with would be the interest.

I did one where one beneficiary received the money from an escrow company, sent half of it to the other beneficiary, we prepared the 6252 at the end of the year for 1/2, and sent a copy of the 6252 to the other beneficiary for their return. We also sent the amount of the interest to be reported.

Idea. Do you want the estate elect out and pay tax on the sale at the estate level. Then the only thing to be reported by the beneficiaries is the interest received each year.

Better idea. Cash out. Do they really want the property back at some point. That can happen very easily.