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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Over the past two years Ive bought two forecloed homes. Took

Resolved Question:

Over the past two years I've bought two forecloed homes. Took a reverse mortgage plus ome IRA funds and paid them off.
Have in 09 sold both and self financed them.I'm aware of the need to pay taxes on interest received but not sure about how to treat the principal.
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.

When you sell property on an installment basis, you are required to report the sale on the installment basis unless you "elect out" on or before the due date for filing your tax return for the year the sale was made.

Under the installment method, you only report each year the the portion of the gain that you actually receive (not counting interest). As an example, if you sell a property for $100,000 and the buyer pays you installments of $10,000 each year plus interest, then for each of the next 10 years you report 1/10 of your gain. Your basis in the property is also adjusted by the same percentage.

If you prefer to report the entire sale in the year that the sale contract is signed, you may elect out of the installment reporting and instead report the entire gain in the year you actually sold the property. Here is a link to an IRS page that explains this in more detail. You may also refer to IRS Publication 537 on Installment Sales.

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