Installment Sale?

[Lee B]

Client sold a house originally intended to be a rental but it was never rented, purchased in 2020 and sold in 2022.

Sold for $435,000 with a basis of $415,000. Received Down Payment of $49,000 took back a Promissory Note for $385.000.

The Promissory Note is interest only with a balloon payment due in 2029.

With down payment in 2022 and the balance of the principal in 2029 would you handle this as a Installment Sale?

[Abby Normal]

Yes.

[DANRVAN]

2 hours ago, cbslee said:

With down payment in 2022 and the balance of the principal in 2029 would you handle this as a Installment Sale?

 

I would take a look at it both ways.

 

It looks like using the installment election your client would recognize about $2,000+ capital gain in 2022; and $18,000- in year 2029;  vs recognizing gain of $20,000 in 2022.

 

How would the extra $18,000 effect 2022 income taxes?  Any capital losses or $0 percent capital gain bracket to consider?

[Lee B]

Their income is down this year but no capital losses available and no 0 percent capital gain bracket available.

Normally they're in the 24% federal bracket or higher.