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Anne, Master Tax Preparer
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I sold land (30 acres) as part of my original homestead on ...

Customer Question

I sold land (30 acres) as part of my original homestead on a land contract basis over a period of 15 years and made a profit,(gain) and will receive 15 yearly payments . Must I declare the entire capitol gains(15 %) in this first year?
Submitted: 6 years ago.
Category: Tax
Expert:  Anne replied 6 years ago.

HiCustomer/p>

Thank you for using justanswer. Each payment on an installment sale usually consists of the following three parts.

  • Interest income.

  • Return of your adjusted basis in the property.

  • Gain on the sale.

In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. You do not include in income the part that is the return of your basis in the property. Basis is the amount of your cost investment in the property plus any improvements, real estate taxes not previously deducted, realtor fees, etc. This means that instead of reporting all of the gain in the first year, you spread that gain over the time length of the land contract. The only exception to this would be if you were selling depreciable property (such as a rental home, etc) then you must recapture any depreciation previously taken in the first year of the installment agreement. Since you mentioned you were selling land, this shouldn't apply, since land itself is never depreciable.

You calculate the % of interest and gain vs the cost basis by filing Form 6252 (Rev. 2007) Installment Sale Income

Please see below for more indepth information.

Publication 537 (2007), Installment Sales

I hope this helps

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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1922
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Anne
Anne
Master Tax Preparer
1903 Satisfied Customers
Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses