The gain is calculated for each year on the taxpayer's tax return where principal payments are received for the installment period.

 

1. Realized gain: Selling Price - Adjusted Basis - Selling Exp. = Gross Profit Realized

2. Contract Price: Selling Price - any Assumed mortgage.

3. Gross profit % = 1 /  2

4. Recognized gain each year: 3 X Principal payment only

 

The amount taxable each year is the income portion of the installment payment multiplied by the gross profit percentage.

 

Example: Seller sells investment property for $200,000. The purchase price of the property was $150,000. The sales contract provided for a 20% down payment ($40,000) in the year of the sale and a note for the remaining 80% over a 10 year period.

           Total gain: $50,000 X 15% capital gain rate = $7,500 tax due

 

 Installment gain:    $200,000 (Contract price)   - $150,000 (basis 3/4) = $50,000

                                    50,000 / $200,000 = ¼ total gain

     Principal payment received: $40,000 - $30,000 (.75) = $10,000

     Gain reported $10,000 X .15 tax rate = $1,500 tax due

David Spencer, Broker

My Blog; website

 

0 Comments on Regognition of Installment Sale Payments for Tax Purposes
What does the graphic say?
Leave a response…

(optional)
Spam Prevention:
 
Kw52440707 Rainmaker_large

David Spencer Chicago Area Commercial-Residential R.E.

Bloomingdale, IL

More about me…

Keller Williams Team Realty

Address: 800 E Northwest Highway, Suite 200, Palatine, IL, 60074

Office Phone: (847) 241-2200

Cell Phone: (630) 750-4255

Email Me

Real estate topics on better business performance, education, advanced techniques for selling/buying residential, commercial and investment real estate; 1031 tax deferred exchange, licensing; anecdotes and stories to ponder.


Listings

Links

Archives

RSS 2.0 Feed for this blog