Chapter 24

Chapter 24 - Chapter 24 Installment Sales Taxpayer...

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Chapter 24 – Installment Sales Taxpayer beneficial section: allows for the matching of the tax liability with the ability to pay it.
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Installment Sale When does an installment sale occur? When at least one payment under the contract will be received AFTER the end of the year in which the disposition of the property occurs.
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Installment Sale Example: Taxpayer enters into a contract to sell land for $1 million. The purchaser will pay the total price in equal installments over 5 years. Adequate interest is called for in the contract. Taxpayer’s basis in the property is $100,000. Total Gain is $900,000
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Installment Sale Tax result: Assuming that the payments are actually received, taxpayer will recognize gain in each of the five years as follows: Gross Proceeds $1,000,000 Less: Basis $100,000 equals Gross Profit $900,000 Gross Profit % 90%
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Installment Sale Payment received in year one of $200,000 Multiplied by: Gross Profit % 90% Equals Gain to recognize $180,000 Character will always remain the same, but is determined under the normal rules.
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Installment Sale Taxpayer can elect NOT to use the installment sale method. Why would you do that? If you have expiring tax attributes that you can use to offset the gain.
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Contingent Sales Price Open transactions – severely restricted. Maximum stated selling price.
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Chapter 24 - Chapter 24 Installment Sales Taxpayer...

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