installment sale

[TAX4US]

TP has a rental acquired in 2005. Took regular dep (27.5years). TP sold on installment sale with a gain higher than original cost. Gain would consist of gain due to dep and gain above cost. I think gain due to dep would be 1250 gain and thus taxed at the max 25%. Question is as payments are received is the 1250 gain recaptured first and then the remainder gain as plain capital gain? I tried getting through the pubs for sales and can't seem to grasp which is first. Manny thanks to insight in this picture.

[taxea]

I would allocate it yearly for the length of the contract.

[Roland Slugg]

When there are both types of gain on an installment sale of real property, the Unrecaptured §1250 Gain is taken into account first, as payments are received, before any net capital gain is included. (Regs 1.453-12(a))

Remember, too, that if there are non-recaptured net §1231 losses in the previous five years, the taxable gain from the installment sale will be taxed as ordinary income to the extent of the non-recaptured net §1231 losses. This applies to both types of gain. (Regs 1.453-12(d))

[TAX4US]

Mr. Slugg, in your opinion does passive gain from a sale of a rental retain its passive character through out the collection period on an installment sale? This could ultimately increase the amount of rental loss allowed.

[Matt Sova]

Rental Installment

The gain would maintain its rental passive status making it available to increase the amount allowed for rental passive losses.