Foxy-Lady
Level 3

November my client sold on a single-family home on land contract (11 yrs, 5 months) for $41,000.  Original selling amount was $34,500 but he loaned them $6,500 for a new furnace, etc.

There is a mortgage for $34,348.14 on this property. 

When it was first put on as a rental property the value was $36,331 in 1999.  The depreciation is $30,109.

How do I show this on the tax return? From what I read it cannot be an installment sale. I have never done a land contract sale. If I could have some step-by-step I would greatly appreciate it.

Received $550 for Nov and Dec part escrow and part payment 

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dkh
Level 15

Go to your Asset Entry worksheet - scroll down to Dispositions   fill in your sale information   Double Click the Form 6252 and link it  - then finish F6252 information      

qbteachmt
Level 15

Is this really what the paperwork shows: "November my client sold on a single-family home on land contract (11 yrs, 5 months) for $41,000. Original selling amount was $34,500 but he loaned them $6,500 for a new furnace, etc."

I sure wouldn't want a Loan factored into a Gain, if that isn't what really happened.

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"Level Up" is a gaming function, not a real life function.
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BobKamman
Level 15

All I know is what I read in Pub 537

If you sell property for which you claimed or could have claimed a depreciation deduction,
you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. The recapture income is also included in Part I of Form 6252. However, the gain equal to the recapture income is reported in full in the year of the sale. Only the gain greater than the recapture income is reported on the installment method. 

Foxy-Lady
Level 3

That is exactly what he did. He sold it to a family member. Received  $550 per month for Nov & Dec,  it included escrow and principal.  There is no interest so I know it should be considered implied.  I am totally lost on how I show it.  The original price was $36,331.  Depreciation to recapture would be $25,613.

From what I understand cannot use installment.  Please help.

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BobKamman
Level 15

Again, from Pub 537

Sale of Depreciable Property
If you sell depreciable property to certain related persons, you generally can’t report the sale using the installment method. Instead, all payments to be received are considered received in the year of sale. However, see Exception below. Depreciable property for this rule is any property the purchaser can depreciate.
Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount.
In the case of contingent payments for which the FMV can’t be reasonably determined, your basis in the property is recovered proportionately. The purchaser can’t increase the basis of the property acquired in the sale before the seller includes a like amount in income.
Exception. You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. You must show to the satisfaction of the IRS that avoidance of federal income tax wasn’t one of the principal purposes of the sale.

Filed under "Taxpayers shooting themselves in foot"

qbteachmt
Level 15

"it included escrow"

The word Escrow means there is a sort of Trust Account process. The word Escrow doesn't describe what was paid for. It can include Rent, Principal, Interest, Taxes, Insurance, whatever is defined by the two parties as needing to be in an intermediary account for safekeeping.

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BobKamman
Level 15

Probably just the monthly fee to the escrow company to keep the books on the principal payments.  

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