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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13335
Experience:  15years with H & R Block. Divisional leader, Instructor
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My sister and I inherited a contract which paid a monthly

Customer Question

My sister and I inherited a contract for deed which paid a monthly payment to my mother on a 30 year note. we now each receive half each month. My CPA has been figuring tax for me on the principal paid to me. My sister's CPA tells her that she owes tax only non the interest she receives. Which CPA is correct? The inheritance was on a piece of property.
JA: Thanks. Can you give me any more details about your issue?
Customer: the tax on the principal payments. In approachinh each CPA they say differentlyMy CPA files has filed it on form 6252 and on a quotient of.2835.times the principal. My sister's CPA says no to tax on principal. Who is right?
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Submitted: 10 months ago.
Category: Tax
Expert:  Robin D. replied 10 months ago.

Hello

Also known as land contracts, contracts for deed are installment sales pertaining to homes. A homeowner selling a home in a contract for deed retains ownership until the installment sale contract is fulfilled.

Whoever receives the installment obligation as a result of the seller's death is taxed on the installment payments the same as the seller would have been had the seller lived to receive the payments.
For an installment obligation, payments include:

(1) a return of a portion of the asset's cost (basis) which is not taxable,

(2) a portion from the prior sale of the asset which is taxable as a capital gain, and

(3) taxable interest on the note.

I agree with your CPA.

Your sister's CPA will have to deal with the IRS if they audit your sister.

You are required to click a positive rating so I am credited with the response.

Expert:  Robin D. replied 10 months ago.

After you view my response, please post below if you need more information or if you need no further clarification a positive rating is appreciated.
I know rating takes an additional step and I truly appreciate it when you take the extra time!