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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13314
Experience:  15years with H & R Block. Divisional leader, Instructor
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If I sell an asset like a company million with a 5 million

Customer Question

if I sell an asset like a company for 7 million with a 5 million upfront and then 2 million over 3 years do I owe the tax on the 7 million in year 1 or on 5 million in year 1?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello

An installment sale is a sale of property where you will receive at least one payment after the tax year in which the sale occurs.

Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received. Use Form 6252 , Installment Sale Income, to report an installment sale in the year the sale occurs and for each year you receive an installment payment. You report interest on an installment sale as ordinary income in the same manner as any other interest income.

Your total gain on an installment method sale is generally the amount by which the selling price of the property you sold exceeds your adjusted basis in that property.

You may elect out by reporting all the gain as income in the year of the sale on Form 4797 , Sales of Business Property or form 8949.

You cannot use the installment method to report gain from the sale of inventory (I mention this because you say you are selling a business). Plus you must report any portion of the gain from the sale of depreciable assets that is ordinary income under the depreciation recapture rules in the year of the sale.

The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset.

I sincerely ***** ***** information is helpful and you can read about the sale of a business in the following

https://www.irs.gov/publications/p537/ar02.html#en_US_2014_publink1000221691

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.