Installment Sale - Selling Price Reduced in Later Year

[peggysioux5]

I am working through the calculations of the reduced sales price to determine new gross profit percentage for installment sale, but am uncertain on how to handle some aspects of worksheet that are found in pub 537.  Example:

Original sale price:    $350,000

Adj. basis:                  $275,000

Reduced sale price:  $340,000

Installment sale 

income rpt prvsly    ($130,000)

_______

Calculations             $340,000

less Adj basis           $275,000

Net:                           $  65,000

Less prvs income     $130,000

Net:                           ( $65,000)

Future Instll Pymt:     $210,000

Worksheet directs me to divide the (65,000) by $195,000 to determine new gross profit percentage.

So do I have a new gross profit percentage of zero?  

Peggy Sioux

[Lee B]

No, old Gross  Profit %  21.00 %   New Gross Profit % 19.12 %

When you say Income previously reported, what you probably mean is Principal previously reported.

Gross Profit previously reported 130,000 x .21 = $ 27,300

New Gross Profit $ 65,000 less $ 27,300 = $37,700 ( Gross Profit remaining to report)

I did this quickly off the top of my head so if I screwed up I will fall on my sword

However even if I made some numerical mistakes, the way the numbers need to crunch still follows the same pattern

 

[Slippery Pencil]

Sale $350K
Basis 275K
Gain   75K

How do you get previously reported income of $130K when there's only $75 of gain?

 

 

[peggysioux5]

26 minutes ago, cbslee said:

No, old Gross  Profit %  21.00 %   New Gross Profit % 19.12 %

When you say Income previously reported, what you probably mean is Principal previously reported.

Gross Profit previously reported 130,000 x .21 = $ 27,300

New Gross Profit $ 65,000 less $ 27,300 = $37,700 ( Gross Profit remaining to report)

I did this quickly off the top of my head so if I screwed up I will fall on my sword

However even if I made some numerical mistakes, the way the numbers need to crunch still follows the same pattern

 

You are correct; I was mistakenly using the "principal previously reported" and not the "installment sale income".  Thank you so much!!!  Makes so much more sense now!!

Peggy Sioux

[peggysioux5]

Another question regarding the reporting of new gross profit percentage due to reduction in sales price for an installment sale.....Do you adjust Part 1 of the 6252 when you have a new gross profit percentage due to reduction in sales price or leave all information as originally input and just change the gross profit percentage based on new calculations? 

Peggy Sioux

[Lee B]

Pub 537

[peggysioux5]

I reviewed Pub 537 and do not see any instruction regarding updating Part 1 of form 6252.  Pub 537 is where I found the worksheet for the recalculation of gross profit percentage.  Pub 537 instructions show a recalculation is required but does not go into detail about updating the 6252.  The instructions for form 6252 also provide no info regarding updating form due to recalculation.

Peggy Sioux

[Abby Normal]

I think I'd recalculate the gain from the start until 12/31/20, using the corrected profit %, then subtract the amount of gain already reported in earlier years, and "force" the gain on the 2020 return to be the amount needed to make the cumulative gain correct. A "catch up," if you will.

Then leave yourself a note to change the profit % on the 2021 return.

[Catherine]

1 hour ago, Abby Normal said:

Then leave yourself a note to change the profit % on the 2021 return.

Ye olde "make the return correct, despite what the program wants to do."  Times come when that is needful.  This sounds like one of them.