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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3183
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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Sold a 6 plex in 2007 as an installment sale and just renegotiated

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Sold a 6 plex in 2007 as an installment sale and just renegotiated the sales price/reduced the note amount in 2012. According to IRS publication 537 it says to 'refigure your gross profit using Worksheet B'. They give an example like this:
If the selling price is reduced at a later date, the
gross profit on the sale also will change. You
then must refigure the gross profit percentage
for the remaining payments. Refigure your
gross profit using Worksheet B. You will spread
any remaining gain over future installments.
Example. In 2010, you sold land with a basis
of $40,000 for $100,000. Your gross profit
was $60,000. You received a $20,000 down
payment and the buyer's note for $80,000. The
note provides for four annual payments of
$20,000 each, plus 8% interest, beginning in
2011. Your gross profit percentage is 60%. You
reported a gain of $12,000 on each payment received
in 2010 and 2011.
In 2012, you and the buyer.... etc.

which I understand. What I don't see is how this gets entered on 6252 as the contract amount only gets filled in in the year of sale. Is it only line 19 which is impacted?
Further in using an automated program (turbotax) it would need to keep track of the adjusted contract amount. There is now worksheet B that gets filed with the return I take it?
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Customer: replied 4 years ago.


Yes, please continue looking!


Hi

Thank you for your continued patience. We will continue the search for a Professional for you.

Lindie
Thank you for allowing me to be of service to you regarding your tax question. I need some information before I can assist you further. Have you been utilizing Form 6252 since 2007? Part I of the 6252 would have been filled out in 2007 (the year of the installment sale) and then Part II of the 6252 should have been filled out and attached to your tax return for subsequent years.
Customer: replied 4 years ago.

Part one and two were filled out in 2007. Part 1 computed the Gross profit (285k). Part 2 computed the Gross profit percentage of .6074.


 


In subsequent years since no payments (principle) were received 6252 was not attached. The interest received was declared on Schedule B.

The instructions for Part 2 of the 6252 are straightforward. Go line by line to determine what lines should be filled out. Worksheet B does not get attached to your tax return. I am sending the link for Form 6252 which includes line by line instructions.

http://www.irs.gov/pub/irs-pdf/f6252.pdf

Please let me know if you require further clarification or information.

Customer: replied 4 years ago.

I already have the form and instructions. What I am not understanding is where the reduced sales price is recorded. Are you saying it is only the reduced gross profit percentage that is recorded?


 


Also; if the reduced sales price is not recorded for 2012 (the year the price was reduced) how does it get reported in the final year when the contract is fully paid off?

Give me a moment, and I will get back to you with further information on this. Thank you.
Customer: replied 4 years ago.

Go ahead and take your time, will be out for a while.


 


The main things I need to verify/understand:


1.) The only thing that gets recorded in the year the contract price was adjusted is the Reduced Gross Profit Percentage (on 6252 line 19)??


(please verify this, I want to make sure my taxes are done right)


2.) What about the Reduced Contract/Sales price??? Since the original is recorded on 6252 in the year of sale, how does the revised amount get reported?

If you refer to Publication 537,

If the selling price is reduced at a later date, the gross profit on the sale also will change. You then must refigure the gross profit percentage for the remaining payments. Refigure your gross profit using Worksheet B. You will spread any remaining gain over future installments. You will notice that the first line of Worksheet B is where you put the reduced selling price so you can determine the gross profit percentage for line 19 of the 6252, and also determine the gain to be reported.

If you read through the example you cited in your original question to the end, you will see how everything falls into place.

I hope this makes sense now.

Customer: replied 4 years ago.

The problem is I don't see where on any forms to fill in the reduced selling price (the one filled in on Worksheet B that doesn't get filed with the returns). The selling price is noted on the original 6252 filed for the year of sale (6252). Going from the Publication 537 and from reading what you say, in the year the contract is changed the reduced selling price is not noted on any tax form (only worksheet B used to compute line 19 of form 6252). If this is the case, there must be somewhere to fill out the reduced sales price in the final year of disposition. Further, if you look at Worksheet A from Publication 537 you will note that this is basically from Part 1 of form 6252. I am not convinced that the calculations shown on Worksheet B likewise are not supposed to go on any tax forms.


 


 

Worksheet A is initially used when reporting an installment sale. Because you have a reduced selling price, you use Worksheet B to determine your revised gross profit percentage for Line 19 of the 6252 and also to determine what gain is to be reported each year on your tax return. This is explained in detail in Publication 537 on Pages 3-4 "Selling Price Reduced." If it puts your mind at ease, include Worksheet B with your tax return even though it is not needed or required. Thank you.
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3183
Experience: 18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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