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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11375
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I sold land and will receive extra principal payments how

Customer Question

I sold land and will receive extra principal payments how will this effect my income tax
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

pHi,

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There's are really only two ways to report a gain on sale of real estate.

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(1) All gain in year of sale ( Capital gain = Sales Price MINUS Basis ... And basis is purchase price plus any improvements), or

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(2) If the payments for the property sold are received in any more than on tax year then you will be taxed on the installment sale method (where a portion of any payments received will be

Expert:  Lane replied 1 year ago.

If payments are received I more than on tax year (and you don't elect OUT of installment payment taxation, then here's the formula for calculating the gain:

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Annual Gain =Total Gain / Contract sales Price× Annual Payment

Expert:  Lane replied 1 year ago.

Long-term capital gains are taxed at long-term capital gains rates, which is usually less than ordinary tax rates. The long-term capital gains tax rate is either zero percent, 15%, or 20%, depending on your marginal tax bracket.

Expert:  Lane replied 1 year ago.

Here's the guidance from IRS on this

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From IRS Publication 537

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Figuring Installment Sale Income

You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income.

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 investment in the property for installment sale purposes.

Interest Income

You must report interest as ordinary income. Interest is generally not included in a down payment. However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. Interest provided in the agreement is called stated interest. If the agreement does not provide for enough stated interest, there may be unstated interest.

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Please let me know what questions you may have from here

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Lane

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Expert:  Lane replied 1 year ago.

By the way ... whether you pay all of the gain up front or use the installment method...

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Long-term gains and qualified dividends taxed at

  • 0% if taxable income falls in the 10% or 15% marginal tax brackets
  • 15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
  • 20% if taxable income falls in the 39.6% marginal tax bracket

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Hope this has helped ... Letme know if you have questions

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If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by using the stars on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Thank you,

Lane

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Expert:  Lane replied 1 year ago.

Did you see my answer?

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