0% rate and installment sales

[Nashville]

What about Form 6252 when the gain is transferred to Schedule D for sales prior to 2008? Will taxpayers pay 0% on the gains recognized in 2008, 2009, and 2010? Or will they pay at a grandfathered rate?

You've probably already guessed it, but there is a Part B to this question. In similar fashion what about sales in 2008 which are on installments and recognized in 2011 and later years? Will the 0% rate be grandfathered, or will those recognitions be taxed at the then-applicable rates?

Imagine if all installments are grandfathered, and you are preparing a return for 2012. You then have three tiers of capital gains rates on the Sch D tax calculation, as well as page 2 of the 6251 AMT calculation.

Has anyone ventured to guess what will happen or what congress will do?

[LawrenceGR]

Dump

it our laps probably. They do some things with no regard to how the average Joe will be effected, much less Joe tax preparer. If congress stays their normal course the change (or not) will happen Dec 31.

[Roland Slugg]

The 0% tax rate in effect for 2008 (as well as for 2009 and 2010 if Congress and the President don't repeal it) on certain LTCGs applies regardless of when installment sales may have taken place.

[Burke]

You are correct on this. It does not matter when the installment sale originated, the tax rate is based on the one in effect for the year the income is reported. I remember way back when a client had an installment sale in effect, and cap gains were reported at 40%, then changed to 100%. He had to use the tax law in effect in the year the money was received. That's the disadvantage of installment sales, you never know what the future laws or rates are going to be.

[erchess]

Possible Scenario

Suppose that the parents of one member of a couple own an income producing business and they wish to sell it to the couple but the couple cannot or not wish to pay all at once the agreed upon value of the property. One obvious answer would be an installment sale. But what if they didn't want to do an installment sale so they agreed that the couple would buy in separate sales, five percent ownership each year for twenty years? Would the substance vs form rules mean that this still had to be reported as an installment sale?