Installment sale

[JoshinNC]

Taxpayer sold a rental property for $115,000. The buyer took out a bank mortgage for $70,000 and seller financed the remaining $35,000. There were only 2 installment payments in 2006, with 12 to occur in 2007 and 2008 and a balloon payment of $30,000 in 2009. Am I right that the gain for 2006 is the $70,000 received plus the two installment payments received in 2006, minus basis and selling costs? If so, does that mean that no basis is available to offset the gain in 2009 (the year of the balloon payment)? Or, do we apportion some of the basis to each year in which there is an installment payment to be received?

Thanks in advance!

[oceanlovin'ea]

6252

Josh, fill out form 6252. You need to get the gross profit percentage. Then multiply the percentage by the amount received each year.

This is the amount that is included in income. A portion each year there is payments will be taxable.

Form 6252 works it all out very easily.

Linda F

[Bird Legs]

Installment Sale

Also, if you have tax tools, there is a program in there for installment sales.

[JoshinNC]

Will do.

Josh, fill out form 6252. You need to get the gross profit percentage. Then multiply the percentage by the amount received each year.

This is the amount that is included in income. A portion each year there is payments will be taxable.

Form 6252 works it all out very easily.

Linda F

I may have more questions, stay tuned.

[JoshinNC]

Does only the installment portion go on the 6252?

The buyer took a bank mortgage of $70,000.

[abby]

everything but the note

Hi Josh

If the contract price is $115,000 and the note is $35,000. then the seller had to receive at least $80,000 at closing. Never mind what he may have spent that on - paying of his mortgage, closing costs, etc. (The closing costs will figure in the gross profit percentage)

Sounds like he received the $80,000 plus two installment payments. The $80,000 plus the principal of those two payments is taxed in 2006 times the gross profit percentage.

Hope that helps.