The installment method will allow the gain to be apportioned over the payments (recapture, and any other gain)
... excellent strategy for depreciated property
Hang on a sec... let me look at something ... may not be that simple .. my apologies, JUST a sec I'm looking at IRS regs right now
Sorry, don't shoot the messenger here .....
Depreciation recapture accelerates the recognition of gain when there is an installmentsale of depreciated property. When an installment sale occurs, the gain is reported overthe period of time during which the payments are received, but the total amount of anydepreciation recapture is fully recognized in the year of the sale even if no paymentstowards principal are received that year.
Here's the IRS guidance:
If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. This applies even if no payments are received in that year. If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method. For this purpose, include the recapture income in your installment sale basis to determine your gross profit on the installment sale.
If you dispose of more than one asset in a single transaction, you must figure the gain on each asset separately so that it may be properly reported. To do this, allocate the selling price and the payments you receive in the year of sale to each asset. Report any depreciation recapture income in the year of sale before using the installment method for any remaining gain.
Do not this portion: If the gain is more than the depreciation recapture income, report the rest of the gain using the rules of the installment method.
BUt, with a small downpayment, so sorry, the opposite my knee-jerk reaction is actually true ... must be paid in year of sale
Here's the IRS rule: http://www.irs.gov/publications/p544/ch03.html#en_US_publink100072604
Again, apologize for the initial mis-step ... was thinking of the gain itself
THis one's pretty cut and dry
I gave you the IRS guidance ... and here's a good readable piece:
Hope this help
As an add-on:
There are two types of dispositions which may delay or limit the amount of depreciationrecapture:• Tax-free carryovers2 where the transferor’s adjusted basis becomes thetransferee’s basis (such as a gifts or a Section 351 transfer to a controlledcorporation), and• Tax-free rollovers where the property’s adjusted basis becomes the basis for thereplacement property acquired by the transferor (such as a like-kind exchange andan involuntary conversion).Therefore, when either of the above occurs, although depreciation recapture is notrequired initially, it may be required on a subsequent disposition of the property. Thedepreciation recapture requirement is actually transferred from one taxpayer to another.It is important to note that transfers at death do not require depreciation recapture.
Let me know if you have questions