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I sold a building and received a down-payment. The principle

balance is due in five...
I sold a building and received a down-payment. The principle balance is due in five years. I receive interest only each month.Does this qualify for an installment sale? If so would I report the down -payment in this year, -0- for the next four years and the balance of the proceeds in five years when received? Obviously the interest would be reported each year.
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Answered in 5 minutes by:
1/9/2018
Legal Eagle
Legal Eagle, Lawyer
Category: Real Estate Law
Satisfied Customers: 7,494
Experience: Licensed to practice before state and federal court
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Hello! I am a licensed attorney, admitted to practice in state and federal court. I have a nearly 100% satisfaction rating (click here for more info) so all that means is that you can count on me to help today. Because I want to provide you with the most accurate answer possible, do you mind if I take a moment to review your question?

Please keep in mind that our conversation does not include an attorney-client relationship and this is for general information purposes only.

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Great, thank you! Bear with me a moment while I review…

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So, if I understand your question correctly, the iRS says that you do have to report the interest as ordinary income. As far as the principal balance, you will not report that until it is actually received. For example, if I agree to represent someone for $5,000, but they do not pay me until 2019, I would not report this until the next year on my taxes even though I have an interest in the money and a way to enforce the agreement. So, in your case, you would report the down payment and then zero for the next four years and then when you receive the balance, you report it then.

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Customer reply replied 13 days ago
You may want to refer this question to a CPA

I understand. I'll tell you what, let me opt out of this discussion and alert our moderators to send this to the accounts who are experts on the site.

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Customer reply replied 13 days ago
Thank you I await a response
Michael Lykken, Esq
Category: Real Estate Law
Satisfied Customers: 120
Experience: Partner at Soares & Lykken, Attorneys at Law
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Hello, my name is ***** ***** I am a licensed attorney and happy to help you with this. Please understand that I cam only provide you with general information in this forum, and that no attorney - client relationship is formed here. Now, with regard tip your question, you are correct. This is an installment contract. Thus you only report the money when you receive our, all you would report the down payment and then nothing except for the interest payments. When you are paid the balance of the note in 5 years you would report it at that time. I hope this helps, and I would appreciate it if you would rate my service. Thank you!

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Customer reply replied 12 days ago
The questions is - Does this transaction qualify as an installment sale and get reported on form 6252 . If it does not than it must reported in the year of sale? It is my opinion that it is one of two choices. The interest will be reported as received. Please forward this question to a CPA with expertise in tax. Thank you.
it is an installment and you should report it on form 6252. You will need a 1099 each year from the person paying the interest as well.
Michael Lykken, Esq
Category: Real Estate Law
Satisfied Customers: 120
Experience: Partner at Soares & Lykken, Attorneys at Law
Verified
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