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Short Term Installment Sale. Client purchased a property,

Short Term Installment Sale...

Short Term Installment Sale. Client purchased a property, then sold for a gain in less than 1 year. The sale is an installment sale. My software is picking up the entire gain as ordinary income this year. Just wanted to verify entire 23k gain picked up this year?

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That should be it.

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Answered in 15 minutes by:
9/18/2017
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,408
Experience: Certified Public Accountant
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Hi, my name is Mark. I will be happy to help you with your questions. You should only recognize the portion of the gain that you received. Let's assume that you received a 20% down payment and carried the remaining 80% as an installment note. In this case you would recognize 20% of the $23k gain or $4,600.

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Customer reply replied 8 months ago
that's what I am reading, too. No down payment. They should only recognize about $965 this year, ordinary, and the rest each year over the life of the note.

Correct. As they receive payments part of the payment would be allocated to principal and interest. The principal payment would be subject to capital gain rates based on your profit percentages.

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Customer reply replied 8 months ago
Not capital gain rate, ordinary income. This is short term. Interest and ordinary income. Short term installment sale.

Yes, short term capital gains would be taxed at ordinary rates.

Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,408
Experience: Certified Public Accountant
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