Real Estate sale at a loss

[DaveO]

A client has a piece of undeveloped ground he wishs to sell. His basis in the property is $100,000. His cost of sales is $10,000. He is going to sell it for $105,000. He will have a long-term capital loss of $5,000.

The problem is he is going to sell the property in two installments. A down payment of $20,000 with the balance due in one year with 8% interest. I know we can’t report a loss on the installment sale method. Question is, when do I report the loss. On receipt of the first payment, the second or do I prorate it between the two?

[Bird Legs]

Loss on sale of Real Estate

is deductible in year of sale.

[OldJack]

I agree with Bird Legs and also point out that the interest income is taxable only as received.

[Jan]

Just show it as a long term lost on Sch. D as you would normally show it. Like Oldjack said, don't forget to include the interest in income.

[DaveO]

Thanks All

That seemed like the only thing to do but not having seen this before I wanted another opinion.

[jainen]

I daresay

>>not having seen this before<<

I daresay we are going to be seeing more and more losses on the sale of real estate in the next year or two. Don't forget to ascertain that it was in fact investment property. That means his main reason for holding it was the expectation that it would go up in value, not that he was going to build his dream home. And certainly not that it was the side yard of his residence.

I just mention this because we tend to assume a great deal in the short posts on this forum.