Installment Sale Change from Original

[tonya030]

Have client who sold rental property in 2004. Using installment sale method, 6252 was utilized in 2004 and again in 2005. Of course, all of the basis were entered etc. and all was running smoothly. The client was holding a $380000.00 mortgage. For 04 and 05 we reported interest and capital gain as required.

Then in 06 he recently dropped the bomb and told me that they were having problems with the buyer and as a result the buyer sold the property and paid off the balance owed to my client, which I beleive was around $340000.00.

I am assuming at this time, that this was the principal balance due (no interest) but only the balance due. My question is whether I report this lump sum payment for 06 on 6252 since we originally used the installment method, or do I simply report the lump sum payment on Schedule D via form 4797?

I beleive at this time that using the 6252 would make everything quite simple since it is already setup with the correct data and would translate the information to Sch D. Also, installment sales does not require the same payment each year etc. so I am hoping I can use it and it will settle the transaction forever.

Thanks for any suggestions and your opinions.

tonya030

[veritas]

If the sales price did not change then continue on installment sale as previously reported. Remember an installment sale is any sale which is colllected over two or more tax years.

[JG EA]

Change

Since you say it was a change from the original, well that sounds like it was an interest only until the payoff? If that is the case then the seller is accepting a smaller payment? If that is the case, see pub 537 page 11 on accepting a smaller pay off.

If that is not the case, then all should match up with the principal your seller has been receiving each year. At the end of any year the remaining balance should equal the long term escrow reports (or the amortization if done just between the 2 parties).

In any case, there would be some interest until the payoff date.
JG