8 - Installment Sale

8 - Installment Sale - Oct 4, 2011 Chapter 8 - Advanced...

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Unformatted text preview: Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 2 What is the “Installment Sale?” The Installment Sale is a method of reporting income, in the sale of property, when the seller does not receive all cash, but receives part of the sales price in cash, then receives the remainder in payments on a note that they have carried on the property they have sold. Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 3 The installment sale is a METHOD OF REPORTING TAXES, not an INSTRUMENT FOR PASSING TITLE. A Method of Reporting Income Not an Instrument for Passing Title Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 4 The installment sale was adopted for taxpayers who would be carrying all or part of the cash value of their property, in paper, upon the sale of that particular property. The Installment Method of reporting taxes was also created to encourage owners to carry paper on the sale of their real property. A Method of Reporting Income Not an Instrument for Passing Title Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 5 What is the “Installment Sale?” The act of selling a commodity while personally carrying the financing. Normally the seller will use one of the following as the financing vehicle; 1. Trust Deed, 2. Mortgage, 3. All Inclusive Trust Deed 4. Contract of Sale Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 6 Installment Sales Help Expand the Economy When former owners carry the paper or notes on property that they have sold it helps expand the economy, creates more sales, generates more income. The method was created to encourage sellers to carry paper on the sale of their real property. Additionally these sales create incomes for the sellers, and finally generates more income taxes. You’ll find the provisions for the Installment Sale in the Internal Revenue Code §453. Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 7 Designed to; The Installment Sale is supposed to create a situation where the tax payor can pay any taxes due when they actually receive the cash. It was not meant to be a tax savings device, it was simply meant to defer the taxes due on notes carried to the day when those notes are changed into cash Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 8 Two Types of Income Within the Installment Sale we have two types of income, principle and interest. The two types are differentiated between because each is treated differently from an income tax standpoint. Principal is normally taxed at a lower rate than interest. Interest is normally taxed as ordinary income. Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 9 Two Types of Installment Sale Income 1. Principal 2. Interest Oct 4, 2011 Chapter 8 - Advanced Finance - Installment Sale - Rooks 10 Principal 1. Principal is the money that was loaned. Principal payments are the money paid, or returned on the actual...
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This note was uploaded on 10/04/2011 for the course REAL ESTAT 14A taught by Professor Robertrooks during the Spring '04 term at El Camino.

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8 - Installment Sale - Oct 4, 2011 Chapter 8 - Advanced...

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