Reply to Steve's Post: the property received has a fair market value of 700K and the property given up has a fair market value of 1.4M. The buyer thus gives up 700K worth of proeprty wtih a 200K basis and a 100K mortgage on the land, as well as 400K installment note in exchange for property worth 1.4M with a 750K basis, and subject to 400K in mortgages.
I am doing an installment sale
. My question is if the seller is giving up 400K of mortgages but taking on 100K mortgage, is my sale price the value of the 400K installment note plus net mortgage relief (300K) or is it the total mortgage debt that is assumed by the buyer (400K)?
Also, the 400K mortgage debt consists of 2 mortgages, one for 200K and the other is also for 200K but the sencond mortgage was taken out in contemplation of the sale and wasn't put back into the building. So would that even be considered within the sale price if its not defined as qualifying indebtedness?
Right now i have a SP of 700K (400 note plus 300 net indebtedness assumed by buyer)
KP of 650 (700 sell price - indebtedness not exceeding 50K of excess basis)
GP of 650 (700 sell price - excess basis of 50K)
GPP: 650/650 - 100%
but it seems that there is equally valid possibility that the Sale price remains 800K (400 installment note + 400 indebtedness assumed by buyer)
GP: 400K - 50K = 350
GPP: 350/400 = 87.5%
Under this calculation, i recover the 50K of excess basis and my gross profit equals the amount of gain over the four years.