Installment Sale

[taxdan]

I have a client on the selling end of an installment sale with no stated interest. She sold her goodwill in a partnership for $75,000 (no basis) paid quarterly over 3 years beginning in 2010. Can I simply use a rate (like 1% APR) and do the math to figure how much interest would be paid (calculated quarterly) over the life of the agreement, then deduct that total interest from the contract price? I calculated $1,219 in interest over the 3 years, then was planning on showing $656 interest received in year one, $406 interest received in year 2, and $157 in year 3...and the contract selling price would be $73,781.

Does that sound like I'm even remotely doing this right? I'm new to installment agreements and any advice would be greatly appreciated.

Thanks!

Dan

[taxdan]

Any thoughts from anyone?

[jainen]

>> 1% APR <<

The Applicable Federal Rates are published monthly at My link.

[taxdan]

Thanks Jainen. Does it look like I'm handling the rest of it correctly?

[TAXMAN]

So looking at the question what would the imputed interest rate be? I sometimes get confused on these. I also have one comming up where the tp and seller aggreed to 2.7% on an installment note for purchase of house. Thanks

[taxdan]

So looking at the question what would the imputed interest rate be? I sometimes get confused on these. I also have one comming up where the tp and seller aggreed to 2.7% on an installment note for purchase of house. Thanks

According to Jainen's link, it looks as though the rates depend on the type of asset being sold. According to Pub 537 (Installment Sales), it looks as though my client's asset in question is not a section 1274 property, so I am going to use table 2. It does seem a little confusing though determining which IRS section your property falls into though.